Update: Coronavirus and the Inheritance Tax Conditional Exemption for Heritage Property

Following an update from HMRC in January 2021 that it will be extending the changes made to the inheritance tax conditional exemption for heritage property, which allows the deferral of inheritance tax in certain circumstances, this article seeks to explain how and when the exemption may apply, and the current impact of coronavirus on these conditions.

What is the conditional exemption for heritage property?

The conditional exemption applies to the transfer of property which has been designated as important to the United Kingdom's national heritage. It can be claimed on real estate, chattels, objects or groups of the same, ranging from books and works of art to houses and woodlands.

The transfer to the new owner can be the result of a lifetime gift or made on death (including instances in which a transfer would have been a potentially exempt transfer had the transferor survived seven years). Where the exemption applies to lifetime transfers, the transferor must have been beneficially entitled to the property for the preceding six years or, where the transferor inherited the property on a death, it was conditionally exempted from inheritance tax.

To be designated as important to the United Kingdom's national heritage HMRC takes various factors into consideration including, and not limited to, whether the property, in their opinion, is of national, scientific, historic, artistic, outstanding scenic, or architectural interest.

If you consider your property to meet one of these conditions, you must contact HMRC within two years of the date of the transfer, subject to HMRC's discretion to extend this period.

If the above conditions are satisfied, inheritance tax can be deferred on the property for as long as the appropriate person (usually the new beneficial owner) undertakes to look after it in the UK, allows reasonable public access to it and does not sell or otherwise dispose of it. The particular undertakings can vary according to the property transferred.

What changes have been introduced and when will they extend to?

Initially, changes were introduced through guidance issued to the Heritage Group of Professional Advisors and other stakeholders in March 2020 as owners of heritage property were unable to follow the undertaking to allow public access due to the effects of the pandemic. On 7 January 2021 HMRC advised that they would be extending the changes to April 2021, due to the effects of the pandemic continuing, and the UK entering another national lockdown.

HMRC will not consider the undertakings made by the owner of heritage property to be broken where the owner has closed the heritage property or delays access. The changes also apply to circumstances where a conditionally exempt object is available by appointment or on loan to a venue which has closed. Equally, where the production of promotional material is a term of the exemption, HMRC will not consider the exemption lost if this is unable to be produced.

For further information about the factors to consider and applying for the conditional exemption for heritage property please contact Jennifer Ridgway, Charlotte Coombs, or Tegan Osborne-Brown.