evidence framed in a way which the cynical might deduce as TECHNICAL HAPPENINGS AND RUMOURS IN being no more than a means of deterring even the most THE ‘HERITAGE WORLD’: determined lobbyist. However, some readers may not be familiar SOME NOTES ON DEVELOPMENTS OVER THE with ‘language that government understands’ in this area – in a PAST HALF YEAR nutshell promotion of public access and cultural diversity as

by Edward Manisty fundamental objectives. Director, Heritage and Taxation Advisory Service, Christie’s On pages 26 to 34 inclusive of his Review, Sir Nicholas examined the possible expansion and modification of the fiscal incentives available towards retaining important chattels in this country and for encouraging gifts and sales to public collections. He came up with some thirteen Recommendations to this end, the NEWS FROM THE DEPARTMENT OF CULTURE, implementation of which would require modifications to MEDIA AND SPORT (‘THE DCMS’) existing law and practice. Earlier in the year the House of n 28 July 2005 Heritage Link, a charity engaged in Commons Culture, Media and Sport Select Committee Opromoting the historic environment, issued a statement in demanded a Treasury response to these Recommendations3, regard to its recent meeting with the new Culture Minister, and notably that in regard to the extension of Gift Aid so that David Lammy. The Minister was noted as saying that “...he looks the donation of significant artworks to public collections might for support from the sector to promote the heritage ‘offer’ be offset against income and corporation tax4. It fell to the across government and in particular to the Treasury“. He DCMS to include the Treasury’s belated answer to these stressed first “coherence and unity” and secondly ”building an Recommendations in a paper containing the Government’s evidence base and promoting it in a language that government response to the Select Committee’s observations generally5. This understands”1. drew attention to the publication by HMRC of a new page in its Business Income Manual containing guidance on the treatment On the first issue Mr Lammy undoubtedly has a point. On the of the costs of maintaining a business archive and facilitating same day he drew attention to an independent report public access to it in computing the profits of a business for tax commissioned by the DCMS and its satellite quango, the purposes6. This mealy mouthed statement does little more than Museums, Libraries and Archives Council (“MLA”)” that merely confirm the law. In any event, this timid gesture examined the case for a national purchasing agency for public represents the sole positive response of the Treasury to date to libraries. This revealed that by acting together and pooling Sir Nicholas’s suggestions for modifications to direct taxation resources 149 library authorities across the country could save law and practice to meet the objectives of his Report7. The between £7 million and £20 million, if they instituted a apparent contempt of the Treasury for the remainder of Sir programme of joint orders and shared systems2. It might also Nicholas’s Recommendations in this area would seem evident have been fair comment if the Minister had drawn attention to enough from the following passage from the DCMS paper:- concern in the museums and libraries sector to two other key matters within his remit – the lack of any substantive response “The Government has in place a wide range of tax reliefs for giving from the Treasury to the recommendation for changes in direct to all charities, including museums and galleries. The Government taxation contained in the Goodison Review, being Sir Nicholas believes these are generous and there is scope for these to be used Goodison’s January 2004 Report to the Treasury Securing the more widely. Where works of art are donated, these are exempt Best for our Museums: Private Giving and Government Support, from capital gains tax and inheritance tax. In addition, the and the emerging signs of a run down in grant aid from the Acceptance in Lieu enriches museum and gallery collections. We Heritage Lottery Fund for new acquisitions by public collections. will keep any proposals for new reliefs under review”8. In regard to his second issue, the building of an evidential base Readers may be tempted to ask why, if everything in the garden for change and the language of promoting it, the Minister is on was so lovely, Sir Nicholas was asked to address such issues in rather more controversial ground. Readers with experience of the first place. The taxpayer can obtain income tax relief on lobbying government departments, and particularly the giving land, buildings, shares and securities to charity – why not Treasury, will often have encountered requisitions for data and works of art? Surely we should be told?

2 WINTER ISSUE 2005 The reader may only speculate on the reasons why – out of the The second worry is more straightforward. Of the £2.375 billion blue, as it were – the Treasury commissioned Sir Nicholas to total of ‘public subsidy’ towards the Olympics estimated by the carry out his Review. One likely cause may have been that Government, no less than £1.5 billion is to be extracted from indications were emerging that the ‘wide range of tax reliefs’ the Lottery between now and 2012. In addition to the £410 referred to in the DCMS paper as being so ‘generous’, together million to be ‘diverted’ for this purpose as part of the 2009 with other available ‘defences’, are simply insufficient in review already mentioned, £340 million is due to be contributed the 21st Century to stem the flow of important objects from to the total by the Sport ‘good cause’, and the remaining £1750 this country. Whatever the reason, the sense of gloom in the million is to be raised by the new Olympic Lottery Game13. sector has heightened since Sir Nicholas embarked on his Camelot has estimated that up to 59% of the receipts of the endeavours. Curators and museum trustees faced with the new Game would be derived from players of existing Lottery opportunity to acquire a major work, even in circumstances games switching their allegiance to the new game14. The where it is possible to call in aid existing export controls implications for the HLF would seem clear enough and with and fiscal incentives, are concluding increasingly that Lottery them the very limited prospect of major new acquisitions by UK and other funding is unlikely to be forthcoming at the museums for the period until 2012 at least. requisite level, and that this being so, there is little point in July saw the launch at its annual party of MLA’s Acceptance in pursuing the opportunity. Lieu Report 2004/2005. This gathering seldom fails to produce Changes to the original framework surrounding the distribution some surprise. Last year there was the wholly unexpected, but of lottery receipts among the ‘good causes’ and deviation from ringing endorsement by the then Culture Minister, Estelle the principle of so-called ‘additionality’9 in applying Lottery Morris, of the in situ acceptance in lieu arrangement15. This year receipts are widely perceived to be major contributors to this the Chairman of MLA, Mark Wood, surprised those present by state of affairs. Such factors are seen to have ‘diluted’ the ‘take’ announcing MLA’s intention of supporting efforts to lobby of the Heritage Lottery Fund (“HLF”) and thus its capacity and Government to introduce tax incentives designed to facilitate inclination to fund acquisitions by museums. The National Art the retention of important chattels in this country. Collections Fund (“NACF”) states in a recent paper that the MLA’s 2004/2005 Report mentions16 the qualified delegation to income of the HLF - a key source of funding for acquisitions over MLA under The Contracting Out (Functions in Relation to the last decade - has declined by some 41% since 1997 and that Cultural Objects) Order 2005 (‘the Order’)17 noted in these in 2004/2005 only 0.46% of HLF expenditure went towards columns in the last issue18. Particular attention is drawn to the supporting acquisitions10. Reference is made in the paper to two delegation to MLA under the Order of the powers of Ministers at additional factors giving cause for concern:- the DCMS to approve the acceptance in lieu by HMRC of objects • the review of the Lottery generally in 2009 on the expiry of in lieu of tax under IHTA 1984 s.230, and to allocate such items current licences. This is a procedure to be carried out under to public institutions under the National Heritage Act 1980 s.9. the auspices of the DCMS and commences this year, and The benefits of the new dispensation are already evident in • the introduction, pursuant to the Horserace Betting and regard to English cases, where MLA is able to ensure that the Olympic Lottery Act 2005, of a new Lottery game dedicated final stages in the acceptance in lieu process are concluded to providing finance for the 2012 Olympic Games to be held without the longueurs suffered in the past in obtaining in London. Ministerial consent to such virtually mechanical steps. At the time Readers might have assumed that the first worry perhaps merely of writing there is no sign of further delegated legislation vesting reflected concerns on the part of the NACF, in common with such functions in MLA in regard to Scottish, Welsh and Northern many others11, that the principle of additionality would Irish cases. Such action would remove the delays that remain the continue to be eroded by Government, so that in 2009 the norm in regard to offers involving chattels connected with parts HLF might find that it had even less scope to support of the United Kingdom other than England. acquisitions by museums. However, any such assumption is Building on the lead given by Ms Morris in her speech last year sanguine: for the Government has already announced that an at the launch of its Acceptance in Lieu Report 2003/2004, MLA’s estimated £410 million of Lottery receipts will be divested from Report for this year contains a useful section dealing with the other ‘good causes’ between 2009 and 2012 towards funding acceptance in lieu in situ arrangement19. Anyone considering the Olympics12. the possibility of such an offer would do well to read this

WINTER ISSUE 2005 3 guidance. It flags up one of the major difficulties currently apparently taking steps to convene it. Anyone serving on the afflicting the in situ arrangement: the reluctance of museums to Group may feel it appropriate to insist that before drafting serve as allocatee of items so offered. Unsurprisingly, such points are considered, the DCMS and MLA should address and reluctance stems from unwillingness, on account of poverty, to determine fundamental policy issues that have long remained shoulder the burdens of conservation and other curatorial unsettled in the area, having been batted backwards and responsibilities in regard to objects which are not ‘at home’ with forwards between these two bodies over the past decade or so. the institution in question. As noted in the Report, increasingly The main such issues are as follows:- offerors are being asked to contribute to such costs. However, in • the establishment of clear and workable procedures the writer’s experience, even when there is a willingness on the regarding the allocation of items accepted in situ, part of the offeror to do so, this does not necessarily prove • the promotion of financial incentives to the allocatee and sufficient to persuade a museum to accept allocation in an in offeror towards providing for the burdens of conserving and situ case. In such a scenario the writer has seen cogent curating items accepted in situ, suggestions made to MLA’s Acceptance in Lieu Panel (‘the AIL • the circumstances in which in situ arrangements can be Panel’) towards overcoming such problems. Such suggestions determined, and have been rejected, but without any sign of the Panel coming • the degree of public access to be offered to items accepted forward with any solution to the problem of its own. It is to be in situ. hoped that in the light of Mr Wood’s commitment to involve In relation to the last of these issues Sir Nicholas recommended22 MLA in attempts to improve tax incentives in the sector, he will that flexibility should be shown. Until earlier this year the DCMS encourage the Panel to take a more imaginative and proactive refused to consider a period of ‘open access’ in this context of stance in finding a solution to a problem which is fundamental less than 100 days. However, the Department’s revised version to the continued survival of the in situ arrangement. of the model in situ agreement circulated by Ms Bauer in March Doubtless Mr Wood will have had in mind also the Goodison shows signs of greater flexibility. It includes the following note Recommendation that MLA should play a new and pivotal role to the clause dealing with access (Clause 10(c)(ii)): “It may in in regard to the in situ arrangement. Notably that it should some circumstances be justifiable to agree to a lesser period of assume a supervisory role in relation to negotiation and public access without prior appointment. The total agreed agreement of such arrangements, based on a model in situ should never be less than 60 days in each year, and the agreement which it should ‘sign off’ in all cases20. In moving the Borrower should be required in such cases to provide in addition Order in March the Minister made it clear that although under it public access by prior appointment at other reasonable times to MLA would assume such responsibility, the DCMS reserved to make up the total of 100 days public access each year”. itself ‘final approval’ of steps taken by MLA in this respect, and Perhaps something that those public spirited enough to be ‘sat this reservation was contained in the Agreement subsequently upon’ by the DCMS as members of the MLA’s Working Group completed between the Secretary of State and MLA dealing may be able to build on. with the qualified devolution of this role to the latter. Shortly before the making of the Order, MLA offered to set up a In his Review, Sir Nicholas recorded that on death conditional Working Group to consider the model in situ agreement. In exemption from inheritance tax of pre-eminent objects had accepting this offer, in a letter to interested parties circulating “been a major reason, probably the most important reason, the DCMS revised model agreement, Hillary Bauer, Head of the for the retention of many pre-eminent objects in this country”23. Cultural Property Unit at the DCMS, anticipates that this model He went on to propose in his Recommendation 22 that in should form the basis of the Group’s discussions21, “that the regard to such objects the responsibility for negotiations leading Department will sit on the Group” (sic), and that it “will be to exemption should be transferred from HMRC to MLA. happy to consider all reasonable proposals for further Presumably he was mindful of MLA’s role in the acceptance in amendments [to the official model] following the Group’s lieu arrangement, where it has long advised Government in deliberations”. Given the Department’s adverse reaction to past regard to the qualitative standard and value of pre-eminent efforts to secure even the most modest deviations to a model objects so offered under IHTA 1984 s.230, and where since the that has hardly been well received, the auguries for the success advent of the changes in regard to conditional exemption to of the Working Group would not seem particularly good. MLA is chattels brought about by Finance Act 1998, it has also

4 WINTER ISSUE 2005 exercised a supervisory role over the newly relevant (in this at least forming a pre-eminent collection or group, in groupings context) criteria of pre-eminence which replaced the old of loosely related items, sometimes comprised of a modest ‘museum quality’ test. As was the case before the Finance Act number of objects only, such groupings being propounded 1998 changes the quality of an object put forward for without vast effort in terms of scholarly research and exemption continues to be examined ‘on the ground’ by experts explanation, and thus the inevitable delays associated with such from National museums retained by HMRC, the new ingredient research. An added benefit in proceeding in such a way being the supervisory role played by MLA. The central reason for appeared to flow from emerging evidence, that contrary to the Sir Nicholas’s Recommendation that MLA should assume wider apparent letter of the law, HMRC claimed that if a single item responsibilities in the area of conditional exemption appears to from a pre-eminent collection or group was to be the subject of have followed from the perception, shared with others, that a chargeable event pursuant to IHTA 1984 s.32, then prima HMRC are ‘not the most suitable people to assess works of art facie, this would also bring down the deferred tax charge on the or the suitability of the houses for open access’24 in this context, entire grouping. Such an eventuality, might in circumstances the implication being that MLA is. considered appropriate by HMRC, be avoided by the exercise of a discretion vested in itself, to restrict the chargeable event to Over the past few months problems have arisen in this area. The such single item, this in very much the same way as expressly criteria of pre-eminence as introduced into conditional anticipated by IHTA 1984 s.32A(10) in regard to chargeable exemption regime for chattels appears under two heads in IHTA events relating to so-called ‘Associated properties’ - for instance, 1984 s31(1) supplemented by sub-section (5). First in sub- the sale of one or some only of objects exempted as ‘historically paragraph (a) in regard to items pre-eminent individually. associated’ with a heritage building pursuant to s.31(1)(e). Secondly, and here the problems arise, in regard to items pre- No such discretion is envisaged by the legislation as it stands in eminent as being comprised in a collection or group under sub- regard to a s.31(1)(aa) groupings of pre-eminent chattels. Until paragraph (aa), which reads as follows: earlier this year the approach adopted by Christie’s appeared to “any collection or group of relevant objects which, taken as a meet official requirements and a number of exemption claims whole, appears to the Board to be pre-eminent for its national, relating to pre-eminent groupings were settled on this basis scientific, historic or artistic interest”. without undue difficulty. However, during the course of the Although these provisions substantially follow those dealing Summer this approach was rejected by MLA’s Acceptance in Lieu with the acceptance in lieu of pre-eminent chattels25 there has Panel, apparently as potentially smacking of unacceptable tax been little previous experience of the acceptance in lieu of pre- avoidance29. Objections that this could not possibly be so were eminent collections or groups as opposed to individual pre- sternly rejected, and in July the Panel held a meeting with the eminent items. In 1999 The Capital Taxes Office indicated26 that HMRC to obtain guidance about the manner in which a the Notes about pre-eminence previously produced by the ‘collection or group’ should be constituted under s.31(1)(aa). Museums & Galleries Commission (and now adopted by MLA as It appears that MLA’s stance to such claims was based on two its successor) for its expert advisers in the context of acceptance premises. First, the establishment of any grouping must be in lieu should be followed for the purposes of conditional supported by archival evidence and other detailed research exemption. The Notes, whilst addressing the issue of pre- demonstrating its history and importance in art historical terms: eminence of individual objects, do not give any real guidance in ‘ad hoc’ groupings of the kind previously adopted with some regard to pre-eminent collections or groups. Faced with such a kind of brief survey was insufficient. Secondly, due regard must situation in advising post-Finance Act 1998 claimants for be had by MLA to HMRC’s (then) interpretation of the charging exemption Christie’s had in mind on the one hand the new layer provisions of s.32 in this context, and in particular that on a of bureaucracy introduced into the exemption process with the chargeable event arising on one or some only of items involvement of MLA and the possible scope for delays on this exempted under s.31(1)(aa) MLA would assist HMRC in the account, and on the other hand the rigours imposed by the exercise of its supposed discretion as to whether or not to 1998 changes both in terms of the new time limit for exemption impose a charge to tax on the entire grouping. Following the claims27 and the official insistence that claims once made should July meeting Capital Taxes have informed the writer that HMRC be prosecuted expeditiously28. It seemed the way ahead might consider there is uncertainty concerning the exemption lie in grouping items not pre-eminent individually, but arguably dispensation under s.31(1)(aa), and in particular the operation

WINTER ISSUE 2005 5 of the s.32 charging provisions applicable to chattels exempted • a contact away from the property to whom applications for under this head. HMRC are obtaining legal advice and all HOD access should be made may be specified, existing and new claims for exemption under s.31(1)(aa) will be • written applications for HOD access may be required by a set put on ‘hold’ at Nottingham pending the receipt of such advice. date, with a requirement for a stamped addressed envelope The thrust of Sir Nicholas Goodison’s Recommendations relating for a reply, to conditional exemption was to bring some flexibility into the • directions for HOD access need only be supplied to arrangement, to render it more ‘user friendly’ in the national successful applicants, interest, and to involve MLA in the ‘front line’ towards achieving • visitor numbers may be restricted, as may the number of this. The writer will leave it to readers to form their own views tours on each of the HOD access days, whether developments such as those recounted above in regard • proof of identity may be requested in advance but can only be to the operation of s.31(1)(aa) are likely to encourage owners to demanded on arrival at the property, and not beforehand, and seek conditional exemption for important ensembles of chattels, • The publicity arrangements for HOD access may be restricted and thus facilitate to the laudable objectives that Sir Nicholas to an entry on HMRC’s website that will not reveal the had in mind. situation of the property (assuming this is not also conditionally exempted), but merely the details of the contact. The illustrative specimen website entries prepared CONDITIONAL EXEMPTION: VARIATION OF by HMRC to be sent with the letter to owners anticipating ‘OLD-STYLE’ UNDERTAKINGS - A CONTINUING SAGA HOD access in circumstances of this kind are also included in In these columns in the Summer30 attention was drawn to the Appendix to this article. emerging HMRC thinking in response to the outcome of the so- It is understood that such variations will not seek to ‘touch’ the called ‘test case’31 dealing with the provisions of the FA 199832 enabling the Revenue to impose variations to conditional terms of existing ‘by appointment’ access, and the further exemption undertakings entered into prior to the introduction arrangements for temporary museum borrowings enshrined in of the Act. It appeared that although the vast majority of old Form 700A undertakings signed before the 1998 changes. owners of exempted items who had not succumbed to It is further understood that in a case where the owner agreed blandishments from HMRC to vary their undertaking would be to a variation at an earlier stage HMRC will be prepared to listen left in peace, a small number with objects perceived to be of to a proposal from him that there may be a further variation by high interest to the public might be pursued to give open access agreement34 to substitute HOD access for the open access on the annual Heritage Open Days (‘HOD access’) co-ordinated enshrined in the original variation. by the Civic Trust with the support of English Heritage, such access to be in addition to the existing by appointment access. CONDITIONAL EXEMPTION – “NEW STYLE” Some 150 owners are likely to receive from HMRC over coming UNDERTAKINGS - FURTHER DEVELOPMENTS months a letter in terms of the specimen draft (subject to regional variations33) printed in the Appendix immediately after As foreshadowed in the article contributed by Mike Chantler of the Footnotes to this article. Many owners approached in this Farrer & Co in the last issue of The Bulletin35 a revised version of way may conclude that for the sake of ‘a quiet life’ HOD access IRCT’s Note on Conditional exemption: objects of national, should be conceded, this in addition to the existing by scientific, historic or artistic interest, Finance Act 1998 - appointment access. Guidance has been published on HMRC’s website as an Annex However, if this is to be conceded then the terms of the varied to the Inheritance Tax Manual36. Mr Chantler’s article indicated undertakings will need careful consideration by practitioners that guidance missing from the original version of the Guidance advising owners. They should have in mind the following in Note in regard to access to archive material would appear particular:- later37. The consultative process in this respect between HMRC • ‘open access’ may be restricted to the four annual HOD and National Archives was incomplete at the time The Bulletin access days33 and no more, with the possibility of less than went to press. As there is to be a further consultative process 4 days being acceptable, thereafter with other stakeholders, the final shape of the • the HOD access regime may be restricted to two out of every guidance in this area is unlikely to be forthcoming much in three years, advance of the New Year.

6 WINTER ISSUE 2005 “BENEFIT RESERVED” AND CHATTELS: ‘TRADITIONAL Trustees42. It would be good to think that the recent GIFT AND LEASEBACK’ ARRANGEMENTS – reaffirmation by the Court of Appeal that hindsight is to be THE QUANTUM OF ‘RENT’: AN UPDATE rejected in assessing the value of chattels43 may persuade HMRC As reported in these columns in the last issue of The Bulletin to consider its current posture here. The reluctance of taxpayers HMRC continue to examine such cases38. However, a clear to institute costly proceedings to defend properly considered pattern is emerging. Rents fixed in regard to country house taxation valuations of chattels should not be abused by HMRC chattels at 1% of capital value are accepted as providing ‘full in circumstances where the only real argument that can be consideration’ for the purposes of FA 1986 Schedule 20 produced against the valuation is that of hindsight derived from paragraph 6(1)(a), provided the hallowed procedures relating to a subsequent sale result at a much higher figure that might have the negotiation of such rents have been observed39. On the been predicted at the valuation date. Such strictures are other hand, at the time of writing HMRC’s probe in cases where particularly relevant in the volatile and often uncertain world of the gross rent has been set at a lesser level is maintained, even the fine art market44. when the hallowed procedures have been observed. The writer believes that ultimately in circumstances where such lesser rents “NAZI LOOT” AND THE LAW OF CHARITIES have been agreed following negotiation between independent Readers may have noticed press comment in recent months in valuers experienced in such matters instructed on behalf of each regard to the Vice Chancellor’s decision45 that a museum charity side, HMRC will have to abandon what is left of their challenge. could not return to the heirs of a Dr Feldmann drawings stolen This reflects both the longstanding and continuing absence of from him by the Gestapo in Czechoslovakia in 1939, this despite any ‘real world’ market in letting such chattels, and his the likely merits of the heirs’ claim. The British Museum Trustees knowledge that prior to the introduction of the pre-owned requested the Attorney-General to sanction the return of the assets income tax charge in 2004 and the ensuing furore drawings to the heirs on an ex gratia basis following the relating to rental levels in this area, in the context of the ‘benefit Snowden principle46. The Attorney referred the matter to the reserved’ provisions contained in FA 1986, HMRC had accepted Court which rejected the application having regard to the on enquiry, a rental level for chattels of this kind, at a level well express terms of s.3(4) of the British Museum Act 1963 below the 1% ‘norm’. prohibiting the de-accessioning of the Museum’s collections, save in limited circumstances not applicable to the case47. It is VALUATION OF CHATTELS IN A TAX CONTEXT clear that this decision proceeded on the basis of its special facts In the last issue of The Bulletin in these columns the writer and notably the terms of the statutory bar imposed by the referred to increasing difficulties in dealing with such valuations British Museum Act on de-accessioning. In the absence of following the hiving off of such work in HMRC to the Shares such a bar there is no reason why museum trustees should not Valuation Division40. A facet of this that was not mentioned on follow the Snowden principle and either return indubitably that occasion but which has been apparent for some little time looted property or provide cash compensation in lieu to the is the refusal of HMRC to accept that in valuation terms dispossessed owner or his or her heirs by way of ex gratia hindsight must be rejected. In other words if a chattel, or indeed payment. Museum trustees and those advising them, faced with any property is valued on a death for tax purposes at £1,000, such a spoliation or related problem can usefully refer to the but is sold a year or so later for £2,000, this does not necessarily Memorandum submitted by the Charity Commission in April mean that the valuation was incorrect. Citation to the Shares 2000 to the House of Commons Culture, Media & Sport Valuation Division of the well-known observations of Mr Justice Committee for the purpose of its enquiry “Cultural property: Danckwerts (as he then was) in Holt -v- IRC41 that in such a return and illicit trade”48. In practical terms, for trustees facing context “It is necessary to assume the prophetic vision of a such a problem the first port of call is likely to be the Charity prospective purchaser at the moment of the death of the Commission, but the likelihood is that the Commission will deceased, and firmly to reject the wisdom that might be prefer that matters should be referred to the Attorney-General provided by the knowledge of subsequent events” is routinely for him to decide whether or not the looted work or ignored, as is the earlier even more striking rejection of compensation for it should be granted ex gratia to the hindsight by a Scottish Court in Inland Revenue -v- Marr’s dispossessed owner or his heirs. In the absence of a statutory

WINTER ISSUE 2005 7 bar of the kind that arose in the British Museum case, in case of • the post FA 1998 conditional exemption regime being an indubitably looted chattel there must be good reason to acknowledged to be against the national interest, and expect the Attorney to consent to the trustees proceeding ex impotent as a means of stemming the flow of major objects gratia to cede it to the owner or his heirs or to provide financial abroad, and compensation, this particularly if such a course of action has • two or three objects perceived to be of the very highest been recommended by the Spoliation Advisory Panel established national importance disappearing overseas. 49 by the DCMS to consider such cases . These five factors will lead finally, and doubtless belatedly, to the government of the day abandoning current complacency in VALE regard to the measures in place to assist in the formation, As this is the final occasion when the writer will address maintenance and retention of important ensembles of works of happenings and rumours in the ‘heritage world’ in these art in this country. At last the current creaking and ramshackle columns, he will indulge himself with some clairvoyant thoughts structures of export control and fiscal incentives in the sector will about developments over the next decade that may impinge on receive the attention they deserve and be replaced by the sector. alternatives that reflect the aspirations of a modern society. On a wide front much of the existing baggage surrounding the Unlike Lot’s wife the writer is unlikely to be tempted to look formulation, enactment and administration of taxation in this back to see whether such prophecies are fulfilled. If the wrath of country would seem ripe for consignment to the dustbin of God is to be incurred he can contemplate more congenial ways history. Arguably, it is strangling the effective management of of meriting it. Added to which when in due time he arrives in the economy in something like the way that exchange control the nether regions, he confidently expects to be greeted by former denizens of the art market and legal profession. That and unrestrained trade unionism did in the pre-Thatcher years. they will entertain him in the discomforts of their new shared Weighed down by arcane and antique allowances and reliefs, surroundings he has little doubt, but being somewhat weary of under constant assault from brilliant minds promoting such amusements at the present time, he is content to revisit avoidance that is unfair to the community as a whole, them when the final trumpet sounds, in the sure knowledge increasingly desperately tinkered with by a legislature which that he will do so in good company! barely considers, let alone understands, the amending legislation put before it, and ‘policed’ by an ever-expanding Edward Manisty Heritage and Taxation Advisory Service bureaucracy, the system just survives. It calls out for root and Email: [email protected] B branch reform, involving abandonment of taxing by reference to construction on a word by word basis in the traditional way, of myriad allowances and reliefs, and of all but a limited range of ‘core’ taxes, among which would probably not feature an impost on death. The writer has little doubt that over the next decade a fresh new administration will tackle such reform, and once it has done so we shall all wonder why such matters were not addressed years ago! In the meantime in the narrow parish of chattels and heritage property the next decade may see:- • in situ offer in lieu becoming a dead letter, • the anticipated migration of MLA to the provinces giving rise to disruption in the servicing of the acceptance in lieu and conditional exemption arrangements, • the de facto acceptance that Lottery receipts are mere adjuncts to Government funds generally, with a sharp reduction in funding from this source available towards acquisitions by museums,

8 WINTER ISSUE 2005 FOOTNOTES access for some of the 1,000 by-appointment-only agreements that were 1 Heritage Link Update 71, 28 July 2005 – Heritage Link and the Minister for already in place. It has so far renegotiated agreements with 16 of the 44 Culture. owners who between them hold the majority of exempted items, to provide open access to 1,900 chattels. The cases of two other owners who declined 2 MLA Political Update 29 July 2005 Libraries: Independent Report supports to provide open access were considered by the Special Commissioners in single library purchasing agency, 28 July. 2004, who did not uphold the specific variations proposed but confirmed 3 Culture, Media & Sport Committee Sixth Report of Session 2004-2005, The the principle that the Revenue could review existing undertakings. Because Market for Art HC414 at paras 61 and 62. of the lower quality test for heritage chattels that operated before the 1998 4 Goodison Review: Securing the Best for our Museums: Private Giving and Act, the Revenue is unlikely to press for all access agreements to be changed. Government Support, January 2004 (“Goodison”) Recommendations 34 But it plans to negotiate open access where justified”. and 37. 31 Re (1) An application to vary the undertakings of ‘A’, (2) An application to 5 Government Response to the Culture, Media & Sport Select Committee vary the undertakings of ‘B’, [2004], SpC439. Report on the Market for Art HC414 Session 2004/2005. Cm 6643 July 2005 32 IHTA 1984 s35(A) and FA 1998 Schedule 25, para 10. pp.3 & 4. 33 In 2005 the annual HOD days are limited to 2 days in London, but 4 days for 6 See BIM 42501 – Specific deductions in administration: business archives. the rest of England. The similar European Heritage Days applicable in 7 See Recommendation 39 of Goodison. Scotland, Wales and Northern Ireland are also limited to 2 days. 8 Government Response to the Culture, Media & Sport Select Committee 34 IHTA 1984 s35A (1) as applied by FA 1998 Schedule 20, para 10 (1). Report on the Market for Art HC414 Session 2004/2005., Cm 6643 July 35 ‘The public access and publicity requirements for conditionally exempt 2005 p.4. chattels’, The Bulletin, Summer 2005, Vol 10, No. 1, p. 20. 9 A brief summary of the position in regard to ‘additionality’ may be found in 36 See The Bulletin, Summer 2005, Vol 10, No 1, p. 6 for the Heritage Property the Report of the Culture, Media & Sport Committee Reform of the National Section of the Inheritance Tax Manual. A draft of this had not emerged at Lottery 5th Report of Session 2003/04 HC196-1, 25 March 2004 (‘5th the time of writing. Report’) Volume 1 paras 157 - 165 at pp. 53-54. The Committee cited at 37 Ibid under the heading ‘Public Access Specific Issues’, p.22 at para (b). para 158 a DCMS definition of the principle of additionality as not allowing Lottery funding to ‘become a substitute for funding that would normally fall 38 Ibid p.5. into mainstream Government spending’, and a statement that the 39 For the ‘hallowed procedures’ see The Bulletin, Autumn 1995, Vol 1, No. 5, Government remained “firmly committed to the principle”. Nonetheless the p.8 and the article by Christopher Shepherd in Trusts & Estates Tax Journal Committee concluded that the principle was being eroded particularly in January/February 2000, No. 3, p.16. regard to the establishment of the Olympic Lottery (see para 165). 40 The Bulletin, Summer 2005, Vol 10, No. 1, pp.5-6. 10 The National Art Collections Fund ‘The Acquisitions Problem’ July 2005. 41 [1953] 2 All ER1499 at p.1501. 11 The principle of additionality would seem to be under attack in other areas 42 [1906] 44 SLR 647. also. Readers are referred to the worrying developments in relation to the 43 Thomson -v- Christie, Manson & Woods Limited and others [2005] EWCA law of charities in this respect pointed to by Alison MacLennan of Counsel in Civ 555 at para 132 et seq. Also reported [2005] PNLR 38. her article ‘Local Government and Charities’, Private Client Business No 4 July/August 2005, p.241. 44 For the nature of the art market and relevant valuation issues see The Bulletin Summer 2001, Vol 6, No 1, p.12 ‘The return and valuation of 12 See 5th Report, Vol 1, para 132, and HLF Statement 28 July 2005, The chattels for inheritance tax purposes on a death’ by Edward Manisty, London Olympics. in particular at pp.19-20. 13 See 5th Report, Vol 1, paras 131 and 132. 45 A-G -v- The Trustees of the British Museum [2005] EWHC 1089 (Ch). 14 Ibid para 137. Also reported [2005] 3WLR 396. The Government has undertaken to 15 See The Bulletin Winter 2004, Vol 9, No 2, pp. 3-4. introduce legislation to remove such a bar to de-accessioning in the statutes 16 MLA Acceptance in Lieu Report 2004/05 at p.8. of National museums in case of Nazi loot. See statement by the Culture Minister David Lammy, reported in The Jewish Chronicle 29 July 2005 under 17 SI 2005/1103, 24 March 2005. the head ‘Minister supports law change on looted art’. 18 The Bulletin, Summer 2005, Vol 10, No 1, p. 3. 46 Re Snowden [1970] Ch. 700. 19 MLA Acceptance in Lieu Report 2004/05 at pp. 5-7. 47 For the rather similar case of the Benevento Missal (referred to by the Vice 20 Goodison Recommendation 28. Chancellor in paragraph 46 of his judgement) involving the British Library, 21 DCMS circular letter dated 2 March 2005. The letter erroneously states that and other cases of World War II era spoliation claims brought before the the revised version of the model in situ agreement incorporates a number of Spoliation Advisory Panel established by the DCMS in 2000, readers are changes proposed by the writer. referred to the articles by Jeremy Scott of Withers LLP in his Firm’s ‘Keeping up with art and cultural assets’, Summer 2005, p.6 and by Martin Bailey in 22 Goodison Recommendation 29. Apollo, June 2005, p.56. It appears that following the Vice-Chancellor’s 23 Ibid para 5.18. decision the case of the Feldmann drawings has been referred by the British 24 Ibid para 5.20. Museum to the Spoliation Advisory Panel for guidance as to how matters should now proceed. See the note ‘Nazi Loot’ by Martin Bailey, The Art 25 IHTA 1984 s.230(4). Newspaper, No. 160, July/August 2005, p.53. 26 Capital Taxes - Relief for heritage assets: Notes on the changes made by the 48 HC Session 1999 – 2000 Culture, Media & Sport Committee, 7th Report Finance Act 1998, The Capital Taxes Office January 1999, para 3.4, on p.9. ordered to be printed 18 July 2000 Vol 111, Appendix 44 at p.336. The MGC Notes are printed on pp. 24/25 of the CTO Notes. Reference may also be made in this context to the Inaugural Lecture for the 27 IHTA 1998 S30(3BA). Institute of Philanthropy delivered by the former Chief Justice of the High 28 Capital Taxes – Relief for heritage assets: Notes on the changes made by the Court of Australia Sir Anthony Mason on 1 October 2002 entitled ‘Ethical Finance Act 1998, para 2.5 on p.6. Dilemmas for Charities’. 29 Reference was made in this context to the successful avoidance scheme in 49 It is not inconceivable that a looted chattel may have been subject to a claim Ingram -v- IRC [1999] STC 37, HL for conditional exemption from capital taxation. Museum trustees who are 30 The Bulletin, Summer 2005, Vol 10, No. 1, pp.3-4. Reference was made faced with a spoliation claim should have this possibility in mind, and in the (p. 5) to the interest of the Select Committee of Public Accounts in this area. event of the likely return of such a chattel to the dispossessed owner or his The Committee has now made its Report (29th Report 12 July 2005), heirs, should approach HMRC to ensure that such a step will not expose the paragraph 19 of which contains the following observations:- charity or its trustees to a deferred tax charge. “Under the 1998 Act the Revenue has proposed changes to introduce open

WINTER ISSUE 2005 9 APPENDIX PRE-FINANCE ACT 1998 UNDERTAKINGS Specimen draft of the letter to be written by HMRC Capital Taxes to certain owners of conditionally exempt chattels seeking variation of their undertakings pursuant to IHTA 1984 s.35(A) and FA 1998 Schedule 25, para 10.

10 WINTER ISSUE 2005 WINTER ISSUE 2005 11 12 WINTER ISSUE 2005 WINTER ISSUE 2005 13 14 WINTER ISSUE 2005