New deal for the rich: pay income tax with art instead of cash

Works of art could be donated to the nation in return for a reduction in income tax bills under a scheme being considered by Gordon Brown.

The Treasury is examining whether to extend its art tax write-off scheme, which is currently restricted to inheritance tax, to other forms of tax such as capital gains tax or even income tax.

By extending the tax scheme - which allows the value of a painting to be offset against death duties - companies and wealthy individuals could offer art instead of cash to help to settle tax demands.

The inheritance tax scheme has saved hundreds of valuable works of art for the nation, including paintings by George Stubbs, Sir Henry Raeburn, William Hogarth and Pierre Bonnard. Since 1990 works with a market value of more than £20m have been accepted by the Government.

Last year alone the Government assumed ownership of art valued at almost £40m to cover liabilities for inheritance tax. They included 32 landscape watercolours by Edward Lear and a collection of sketches and prints by Camille Pissarro.

A spokesman for the Department of Culture said: "It's a way of ensuring that the public have access to these magnificent works of art that have been in private collections."

The Treasury is shortly to publish a report on extending the in-lieu scheme after talks with tax and art experts.

Arts bodies are keen to extend the scheme and point out that other countries, such as Ireland, allow estates and companies to offer valuable pieces in lieu of other forms of tax.

Under the "acceptance in lieu" scheme, Estelle Morris, the Arts minister, is in charge of deciding whether to accept a work of art and where it will go. Ms Morris is keen for the works to go to regional galleries outside London to enhance their collections. She is currently considering where to allocate a painting by John Constable, which was accepted in lieu of inheritance tax. Known as The Cornfield, it is thought to date from 1817 and could fetch £1m if auctioned.

The Secretary of the Acceptance in Lieu panel, Gerry McQuillan, said the Government was beginning to gather other valuable collections as well as art, including archives.

"We have just accepted the archive of Anthony Powell, including all the manuscripts of A Dance to the Music of Time. And we have a beautiful Stanley Spencer of a view from Cookham bridge. We gave it to the Cookham Gallery. We are saving work for future generations. The scheme is used to get them preserved for this country," he said

Works accepted this year include many famous names, such as Canaletto and his pupil and nephew, Bernardo Bellotto. Works by the Canalettos were given by the owners of Penrhyn castle in Wales.

But they also include more esoteric pieces, including a 17th-century embroidered bodice and a bust of the American 19th-century poet Henry Wadsworth Longfellow, by Edmonia Lewis, the daughter of a native Indian mother and black American father. She was raised in the Chippewa nation before training as a sculptress and settling in Rome.

The work, accepted in January in lieu of £70,000 of tax from a Welsh family whose ancestor bought the bust, is expected to be exhibited at a Welsh gallery.

The Government has also recently accepted the archive of the architect Leslie Martin, who designed the Royal Festival Hall for the 1951 Festival of Britain. His drawings and models of the ground-breaking South Bank concert hall are expected to be given permanently to the Royal Institute of British Architects.

Many Old Masters have been retained in Britain because of the tax write-off scheme, including a striking portrait of an Elderly Gentleman by Jacopo Tintoretto.

The portrait, which led to £175,000 of inheritance tax being written off when it was accepted in 2001, is considered by experts to be one of the most "magisterial and potent of Tintoretto's late portraits, worthy of comparison with his masterpiece Vincenzo Morsini in the National Gallery".

In some cases the tax liability of a donor family is smaller than the value of the painting offered. This often leads to national funds, such as the lottery, chipping in to acquire the works for the nation.

In the case of Titian's Venus Anadoyomene, acquired this year for the National Galleries of Scotland from the Duke of Sutherland, £2.4m of tax was written off, with the rest of the £14m price tag found by state and lottery funds.

In November 2000 a number of fine Dutch landscapes, including one of a horseman and herder by the 17th- century master Aelbert Cuyp, were acquired in return for a tax write-off of almost £2m.