Most of you will be familiar with the most common inheritance tax (IHT) relief known as Business Property Relief (BPR). Broadly speaking, that provides full IHT exemption for unquoted shares and various assets used in a business. The thinking here is that it is unfair that beneficiaries of business assets should be forced to sell the business in order to pay IHT (and also most of the value of such businesses tend to be in an illiquid form). However, there is another more nebulous IHT exemption that relates to assets which are of national, scientific or architectural interest. A few years ago, a client asked me whether his collection of paintings depicting British naval war scenes would be subject to this exemption due to the ‘national significance’. Unfortunately, the position is not straightforward and the question did remind me of an old episode of “The Mark Thomas Comedy Product” where a group of people dressed as farmyard animals arrived to view some of the valuable paintings in Rothschilds Bank (the point being that there does need to be some level of public access). I have found the episode here with the relevant part starting at 12.57.
Conditions for the ‘national heritage exemption’
The key points about this IHT exemption are as follows:
1. The assets in question need to be any of the following:
• Buildings, estates or parklands of outstanding historical or architectural interest.
• Land of outstanding natural beauty and spectacular views.
• Land of outstanding scientific interest including special areas for the conservation of wildlife, plants and trees.
• Objects with national, scientific, historic or artistic interest, either in their own right or due to a connection with historical buildings.
2. The new owner (beneficiary) must make an agreement to look after the item, to make it available for the general public to view and to keep it in the UK.
3. In some cases, it may be possible to meet these conditions by loaning the asset to a museum for an agreed period per year.
4. A claim needs to be made within two years of death or such later time that HMRC agrees to accept it.
5. If the owner does not honour the agreement or if they sell the asset, then the exemption is withdrawn and tax is payable.
6. The asset needs to be included on HMRC’s website to allow prospective visitors to see what is available. This can be seen via the link here. You will see that there are all sorts of paintings and historical items that you can arrange to see!
7. Apparently, there can be a reasonable charge for the viewings.
Forbes Dawson view
These rules do come with a high level of onerous undertakings to HMRC. Many beneficiaries will not want strangers traipsing around their houses to look at artefacts (although it would be interesting to know the statistics about how many viewings per year actually take place). Furthermore, this is not really an exemption at all but rather a deferral until the conditions are no longer met and the rules around the charges are then fairly complicated. Given that the conditions do to a certain extent amount to ‘using the asset as a tourist business’, in some circumstances it may be possible to use assets to create a museum which is run as a business and if this is operated for two years, then BPR could be available which would make the heritage asset claim redundant. Clearly this is something that would need to be put in place before death and therefore the hassle factors are moved to the older generation. Alternatively, the Government could just abolish IHT and make all these fiddly issues go away!
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