Christie’s Bulletin for Professional Advisers
Hybrid Offers in Lieu from Christie’s Heritage and Taxation perspective As many Bulletin readers will know,
discussions with the offerors and also
the Acceptance in Lieu (AIL) scheme
identified to HMRC at the beginning of
is an extremely beneficial tool to
the process when registering the offer.
consider when dealing with an Estate
Luisa Romanelli Heritage & Taxation Department, Christie’s Luisa joined Christie’s in 2012 after obtaining a BA in Italian and History of Art from the University of Reading and holding positions at The Royal Collection Trust and The National Gallery. She was appointed Associate Director in 2021 and recently qualified as a Chartered Tax Advisor (CTA), specialising in the Taxation of Individuals and Inheritance Tax, Trusts and Estates. Luisa has worked on a number of Offers in Lieu and Conditional Exemption claims for UK Estates, across multiple artistic specialities. She also provides a range of clients with advice on the tax issues surrounding the acquisition, disposal and inheritance of works of art.
which has an Inheritance Tax (IHT)
Naturally, it is not possible to register a
liability and an art collection, or even
hybrid offer without naming an institution
a single pre-eminent work of art.
who has confirmed their willingness to raise funds for the hybrid payment. Without
To briefly recap the benefit of the AIL
this, the offerors would be required to
scheme in general terms, when an open
forgo any excess tax credit that the offer
market sale of artwork following a death
may generate, which could defeat the
occurs, the Estate will pay 40% of the
purpose of undertaking an offer in lieu as
proceeds to HMRC as IHT, leaving 60%
opposed to an open market sale. No formal
of the value to be retained by the Estate.
agreement is required to be entered into
The AIL scheme offers a douceur (literally
at this stage between the offerors and the
a sweetener) of 25% of the value of tax
institution, but it is important to have both
due on the work of art after the IHT has
identified a potential candidate and in turn,
been taken into account. Thus the Estate
to provide them with an indication of the
will be able to receive 70% of the value of
sum that they are likely to be required to
the artwork as a tax credit for the Estate.
raise. In the current economic climate in particular, the latter is important for any
In the vast majority of cases, the tax credit
funding applications that may be submitted
generated by the artwork being offered
to source extra cash for the acquisition.
will produce either sufficient tax credit for the Estate or more likely, not quite
Returning to the AIL process, with a
enough, leaving the remaining amount of
non-hybrid offer, once the item has been
IHT to be paid in cash. There are, however,
considered by the AIL Panel and values and
circumstances when the value of the
pre-eminence have been confirmed, the offer
tax credit that the offer generates will
can complete fairly quickly. With a hybrid
exceed the tax liability of the Estate.
offer, depending on how the other aspects of the Estate are faring, this can often be
In such a case, a museum or gallery may
only the beginning as the other aspects
be willing to make up the difference with
of the Estate must be brought together.
a cash payment to the offerors. This type of transaction is known as a ‘hybrid’ offer
The Executors will have submitted fixed
in lieu — being a hybrid of an offer in lieu
values for parts of the Estate which can
and a Private Treaty Sale (the latter being
be stated with certainty, such as cash,
a tax favoured sale to a UK institution).
investments and listed shares. In terms of elements of the Estate which are variable
2
It is vital in such cases that the hybrid
such as property and artwork, it is these
element is identified at the outset. It is very
estimated figures which will have been
unlikely that it will be quantified exactly at
used to calculate the projected IHT due
the initial stages of the Estate administration
and consequently the estimated quantum
(due to values having to be formally
of the hybrid payment. There is a chance
agreed with HMRC and the likelihood of
of course that by the time the value of the
sales occurring), but the possibility of a
artwork being offered has been agreed by
hybrid offer must be ascertained following
the AIL Panel, that some of the variable
