Fiscal benefits
Fiscal benefits conferred under the Gift and Inheritance Tax Act
Subject to certain conditions, donors can deduct gifts from their taxable income. The law lays down certain conditions, both regarding the sum given and the recipient. Teylers Museum possesses the status of a cultural public benefit organisation (ANBI), and the tax authorities have therefore exempted it completely from the payment of gift and inheritance tax. In other words, the museum does not have to pay any tax on your gift.
The Gift and Inheritance Tax Act
The Gift and Inheritance Tax Act entered into effect on 1 January 2012. The Gift and Inheritance Tax Act gives donors an additional, temporary, tax benefit in relation to income tax and corporation tax. The government's aim is to give private individuals and companies an added incentive to donate to cultural institutions. The Gift and Inheritance Tax Act applies, in any case, for the six-year period ending on 31 December 2017.
Additional tax deduction through the application of a multiplier (25%)
The most striking fiscal measure is that the donor can claim a tax deduction that is 25% higher than the gift itself, and thus obtain a larger tax deduction than would normally apply to the sum of the gift. In other words, the tax authorities allow you to deduct one-quarter more, in your 'Box 1' income, than the actual amount of your gift. This means that you can effectively donate more at less cost to yourself, since the government shares in the costs. This additional deduction applies to all gifts to cultural ANBIs, whether one-off or periodic gifts, up to a maximum annual total of gifts amounting to €5,000. This means that you can claim an additional deduction up to a maximum of €1,250 a year. If you donate more than €5,000 a year to cultural institutions, the sum itself is still tax-deductible, but you cannot apply the multiplier to the amount above €5,000. There are a few other criteria, which we shall explain in the following paragraphs.
Conditions
The advantages of the Gift and Inheritance Tax Act, such as the higher tax deduction for gifts to the supporting foundation of Teylers Museum (as a cultural ANBI) apply to all taxpayers. In all cases, it is a requirement that documentary evidence can be produced of the gift. The amount of the tax deduction depends on the person's income, the amount of the gift, and whether it is a one-off or a periodic gift.
The difference between a periodic donation and a one-off gift
One-off gift
A one-off gift is a gift made in one particular year. Tax deductions for one-off gifts are subject to restrictions: a deduction threshold and a deduction ceiling. According to the deduction threshold, your gifts must amount in total to more than €60 and more than 1% of your total income. The deduction ceiling means that the gifts are tax-deductible up to a maximum of 10% of the total income. The total income is the total of all income in 'Boxes' 1, 2 and 3 of the tax form. The deduction is applied to the income in 'Box 1'.
Example: Suppose that a person's total income is €60,000 and the person makes a one-off gift of €1,000. For the calculation of the tax deduction, the gift is counted at 125% of the actual gift: in this case, that is € 1,250. The deduction threshold is 1% of €60,000 (i.e. €600), so the gift is above that minimum. The ceiling is 10% of €60,000 (i.e. €6,000) plus the additional deduction of 25% (€ 250) makes € 6,250, so the gift is under this maximum. In this case, then, the donation, with the application of the multiplier (i.e. €1,250 in total), is fully tax deductible.
Periodic gifts
Periodic gifts are gifts donated in the form of fixed and uniform periodic payments. For these periodic gifts, neither the lower threshold of 1% nor the ceiling of 10% applies. Instead, the law lays down the condition that a Gift Agreement must be drawn up, in which the donor undertakes to donate a fixed sum each year for five years (or more). Periodic gifts are fully deductible from your 'Box 1' income, regardless of the amount.
Examples of calculations involving periodic gifts under the terms of the Gift and Inheritance Tax Act
Let us look at the case of someone who pays an income tax rate of 35% and makes a periodic annual gift of €100. Applying the multiplier, the person can deduct €125 from his income. The refund therefore amounts to 35% of €125, or €43.75. So the gift actually costs the donor €100 minus €43.75, equals only € 56.25, whereas the museum receives €100. In this situation, for every euro that the donor can afford to give, the museum will receive almost twice as much as is given.
Let's take another example. Suppose that someone pays an income tax rate of 52% and makes a periodic annual gift of €1,000 for five years. In this case, the donor is allowed to deduct 125% of €,1000, in other words €1,250, from his 'Box 1' income without this deduction being restricted by a lower threshold or a ceiling. This means that the 52% deduction amounts to €650. So in this case, the donor pays €1,000 to Teylers Museum and gets €650 back from the tax authorities; the gift costs him only €350. Conversely, this means that someone who can afford to donate a net gift of €100 can donate over €285 to Teylers Museum, since he will receive €185 back from the tax authorities.
Conclusion: a periodic gift yields the greatest benefit
The big difference between a periodic and a one-off gift lies in the tax deduction for gifts. Deductions for one-off gifts are subject to restrictions: there is a lower threshold and a ceiling. These conditions do not apply to periodic gifts. In both cases, the multiplier of 25% is applied to a gift or gifts totalling a maximum of €5,000. Larger gifts are also tax-deductible, of course, but without the multiplier. In consequence, if a gift consists of €6,000, the additional sum is €1,250 (the maximum: 25% of €5,000). In other words, the person could claim a tax deduction of €7,250 in this case.
The Gift and Inheritance Tax Act for commercial enterprises
The Gift and Inheritance Tax Act also makes it attractive for commercial enterprises to make donations, since their gifts too benefit from the multiplier rule. In fact, since 2012, companies have been allowed to claim a 150% deduction from their corporation tax for gifts to cultural ANBIs. In this case too, the additional deduction is applicable up to a maximum of €5,000 a year of the total sum of gifts to cultural ANBIs. In the case of companies, there is no need for a gift agreement.
Gifts in kind
Gifts by way of annuity instalments may be made in money, but alternatively they can be made in kind. Suppose that someone possesses a valuable object (e.g. a painting, drawing, fossil, scientific instrument, book or medal) and wishes to donate it. If the museum considers the object to be of value to its collection and would like to acquire it, the object is valued and donated to the museum over a five-year period. During these five years, the donor can claim a tax deduction of one-fifth of the estimated value. Donations in kind (i.e. the objects) go directly to Teylers Museum. These gifts too benefit from the multiplier rule: the multiplier is applied to the object's estimated value, but here too, the 25% increase applies up to a maximum of €5,000.
Bequests and testamentary dispositions
Some people view leaving a bequest in the form of a sum of money or an artwork as an excellent way of supporting the museum. Thanks to a special tax regime, it has become attractive for private individuals to donate an object to Teylers Museum after death. A testamentary disposition or bequest can often be added to the will by one's own notary. If you have any questions about making a gift or special preferences regarding a possible bequest, please make a personal appointment with us. We can be reached at tel. +31 (0)23 516 0984 or by e-mail at vrienden@teylersmuseum.nl.