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CATEGORY - INHERITANCE TAX

TRANSFERS FOR THE PUBLIC BENEFIT

This information sheet deals with Gifts for National Purposes, National Heritage Property and Maintenance Funds. These subjects are closely related as many heritage properties are eventually gifted to national institutions.

Gifts for National Purposes

Gifts for National Purposes, both those bequeathed in a will and those donated during a person’s lifetime, qualify for an unlimited exemption from IHT and are set out in IHTA 1984 Schedule 3 (as amended). It includes property bequeathed or donated to libraries, art galleries and museums. Some of these such as the British Museum, the National Trust and the National Gallery are set out in the statute. Various others have been approved as fulfilling the required criteria of being a national institution which exists solely or mainly for the purpose of preserving for the public benefit a collection of scientific, historic or artistic interest. The latest Schedule 3 list is shown on the HMRC website and includes such well-known places as the British Library, the Victoria & Albert Museum, the National Portrait Gallery, the Science Museum and Kew Gardens.

In addition to national institutions such as the venerable bodies mentioned above, Schedule 3 also grants exemption to any other museum or art gallery in the UK which exists solely or mainly for that purpose and is maintained by a local authority or university in the UK. It also covers any library which exists mainly to serve the needs of teaching and research at a university in the UK. Schedule 3 also exempts gifts to various other bodies such as local authorities, government departments, universities, health authorities and NHS trusts.

This exemption is subject to the same conditions and limitations as the charities exemption, except that in the following circumstances the exemption would be allowed when it would be disallowed for a charity:

a)

b)

the gifted property represents the benefit of an agreement restricting the use of land; and

a gift of land to the National Trust is accompanied by a memorandum of wishes under which the donor or some other person is permitted to reside in the house or receive the rent during his or her lifetime.

National Heritage Property

It has long been the policy of successive governments that land, buildings and other assets forming part of our national heritage should be conserved and protected for the benefit of the community. They have taken the view that, as far as possible, such property should remain in private hands and that owners should be encouraged to care for it and display it to the public. Where this is no longer possible, owners are encouraged to donate it to bodies such as The National Trust so that it may remain accessible to the public. One of the main benefits of acquiring status as National Heritage Property is conditional exemption from inheritance tax.

At the discretion of HMRC Heritage, an asset may be given a conditional exemption from IHT if it is accepted as National Heritage Property. If an asset satisfies the rigorous criteria for this, it will be given conditional exemption provided appropriate conditions are accepted by the owners. These are known as undertakings and include various commitments such as providing reasonable public access, publicising the property, ensuring its preservation and restricting the use or disposal of the property. The exemption may also apply to objects normally kept within the buildings, such as works of art or other objects of national interest, and property given as a source of income for the upkeep of the heritage property. The main kinds of asset that qualify as National Heritage Property are:

  • buildings of outstanding historic or architectural interest
  • land that is needed to protect the character and amenities of these buildings
  • land, including buildings, of outstanding scenic, historic or scientific interest
  • pictures, prints, books, manuscripts and other works of art of significant national, historic or artistic interest
  • scientific collections or other items not yielding income of important national, historic or scientific interest

For property other than land or buildings, the key test is whether it would make a significant or important addition to a national, local or university collection or whether it is significant in association with a particular building.

It should be noted that if National Heritage property is later sold or its circumstances change in some other way, such as the death of the beneficial owner or a failure to observe an undertaking given to obtain the conditional exemption, the IHT liability will be reinstated. However, this can be avoided if the property is gifted or sold by private treaty to one of the bodies listed in Schedule 3 (as referred to above) within three years. It is also sometimes possible to gift the heritage property to the Crown to discharge any IHT liability, although such offers are rarely accepted by HMRC.

There is a very interesting article about conditional exemption of heritage property, written by Matthew Wrigley of the law firm Wrigleys in June 2005, which clearly explains the benefits and implications of applying for the exemption, discusses the legal and political background and addresses the chief concerns of owners. It is also worth reading the Natural England website which explains how landscapes and the buildings attached to them can qualify as heritage property and how to prepare a Heritage Management Plan as part of the application process.

Maintenance Funds

Closely allied to National Heritage Property are Maintenance Funds. These are trust funds set up to provide for the maintenance, repair and preservation of heritage property and for enabling reasonable public access. Exemption can be claimed from the inheritance tax charges normally borne by trusts at various times. However, there are certain conditions that must be satisfied in order for the trust to be exempt:

a)

b)

c)

the property to be included in the settlement must be of an appropriate character and amount;

the trustees of the settlement must be approved;

the trusts on which the property is held must provide that, during the first 6 years from when property is transferred to the fund, both the property itself and any income derived from it may only be used for i) the maintenance, repair or preservation of the heritage property, ii) making provision for public access to it, iii) the maintenance, repair, preservation or reasonable improvement of the property which has been put into the fund, and iv) for defraying the expenses of the trustees; and

d) the trusts must also provide that for the whole life of the fund income derived from the property may be used by the trustees only for the purposes specified in c) above or for the purposes of a National Heritage body, as defined in the IHTA 1984, or a heritage charity.

In assessing whether property added to the fund is of an appropriate character and amount, consideration will be given to the likely cost of maintaining the heritage property, the estimated income which the maintenance property will be capable of producing and the income which might be raised by way of service charges levied on tenants of the heritage property. Income raised from such service charges will obviously reduce the income required from the maintenance property. It will also normally be assessed whether or not the endowment land is appropriate to the heritage property.

It is important to ensure that only qualifying maintenance costs are paid out by the maintenance fund. This will depend on individual circumstances, but will generally fall under 4 main headings:

a) Structural Repairs – such as preservation and replacement of walls, roofs, fixtures and fittings, although not conversion costs altering the character or use of the building, such as a wing for private occupation.
b) Running Repairs – such as internal decorating, heating, fences, gardening, cleaning, general maintenance, carpets, curtains, restoration of works of art
c) Public access costs – such as the upkeep of roads, car parks, public toilets, fire precautions, wages of guides and attendants
d) Management costs – such as legal fees, accountancy, trustee expenses, inspections, insurance, advertising

Acumen Tax Solutions
2 Purley Bury Avenue, Purley Oaks, Surrey CR8 1JB
Tel: 020 8406 9425 Mobile: 07813 582890 E-mail: info@acumentaxsolutions.co.uk

For information of users: Although every care has been taken in compiling this material, it only provides an overview and does not take the place of an individual consultation. We strongly advise all users to consult the detailed legislation or seek professional advice. Therefore no responsibility for loss occasioned by any person acting or refraining from action as a result of this material can be accepted by the authors or this firm.

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