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Finance Act 2012

Background Note

35.The details of how the application and acceptance process in connection with the scheme will operate are set out in detailed guidance issued by the Department for Culture, Media and Sport.

36.The basic rules for an individual in deciding how to allocate a tax reduction across the relevant tax years are that:

  • the amounts set against each of the five relevant tax years must always add up to no more than the total tax reduction figure;

  • such amount must be specified and agreed in advance in respect of each relevant tax year.  For example, it will not be possible to specify, that say £100,000 to be set against year 1 in the above example, with £400,000 to be distributed across years 2 to 5 in some way to be specified at a later time; and

  • under paragraph 7(2), once the schedule of tax reductions has been accepted within the terms of a qualifying gift, the schedule cannot be varied, even where it is subsequently found that the individual does not have enough tax liability in a relevant tax year to utilise the tax reduction specified for that year.  In such a case the unutilised amount of tax reduction will be lost.

37.The following table gives examples of how an individual might choose to apply a total tax reduction of £500,000 across five relevant tax years.

Year 1Year 2Year 3Year 4Year 5Total

38.Paragraph 6 ensures that where an offer of a gift is accepted under the scheme, resulting in an amount of the tax liability being treated as having been satisfied (as set out in the scheme) then no late payment interest or late payment penalties will be payable on that amount from the date of registration.  It is being explored whether, and to what extent, provisions should be made to defer payments of tax, interest and late payment penalties during the negotiation period in respect of tax becoming payable on or after the registration of an offer, where the offer has been made in good faith. However, if a qualifying gift was not made for any reason (say, for example, because the offer was rejected in accordance with the scheme or because the offer was withdrawn by the donor), then the donor would be required to pay to HMRC both the tax due and any late payment interest due up to and including the date of payment. It is currently envisaged that if the tax and interest remains unpaid within 30 days the donor will be subject to late payment penalties.

39.Paragraphs 23 to 26 of the Schedule provide for exemption from inheritance tax where an object that is conditionally exempt from inheritance tax is given under the scheme.  It is intended to make similar provisions for objects that are conditionally exempt from estate duty.  However gifts of such objects will not be eligible for the tax reduction set out in Parts 1 and 2 of the Schedule.

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