Heritage property ― loss of conditional exemption

Produced by Tolley in association with William Hadley at Boodle Hatfield LLP

The following Trusts and Inheritance Tax guidance note Produced by Tolley in association with William Hadley at Boodle Hatfield LLP provides comprehensive and up to date tax information covering:

  • Heritage property ― loss of conditional exemption
  • Introduction
  • Chargeable events
  • The tax consequences of a chargeable event occurring
  • Settled heritage property
  • Capital gains tax (CGT) and conditionally exempt property

Heritage property ― loss of conditional exemption

Introduction

Where a chargeable event occurs in relation to conditionally exempted property, the exemption may be lost and an inheritance tax charge may arise. For information on the conditional exemption, see the Heritage property ― conditional exemption guidance note.

Chargeable events

Chargeable events may consist of:

  1. a material breach of an undertaking

  2. a disposal of the heritage property

  3. the death of the person beneficially entitled to the property

Where a breach of an undertaking has occurred, in practice HMRC will usually give the taxpayer an opportunity to remedy the breach where possible. If there has been lengthy period of no public access, this may not be possible. Note that a failure to observe an undertaking, as varied by a proposal by HMRC and directed to take effect by the Tribunal, also amounts to a material breach of an undertaking.

The meaning of ‘disposal’ is usually quite straightforward. Note that HMRC states mortgages and leases are not disposals but they could undermine the integrity of the mortgagor’s or lessor’s interest to such an extent that they do amount to a material breach of an undertaking.

The lifetime disposal of a chattel by sale, gift or otherwise will amount to a chargeable event unless the disposal is:

  1. to an exempt body within IHTA 1984, Sch 3 (eg museums, galleries, etc)

  2. to HMRC in lieu of tax under IHTA 1984, s 230

  3. itself a conditionally exempt transfer

  4. to new owners who accept responsibility for the original undertakings

If a chattel is stolen or destroyed (without the owner’s consent), assuming the owner has taken all reasonable precautions to keep the item safe, it may be that no undertaking has been breached and no IHT charge will arise. The position on an unexplained loss of an exempted chattel is slightly more uncertain. Where the missing items are few, not valuable and fragile, then HMRC may be prepared to assume that they have been destroyed and take no further action.

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