Budget 2016 Estate Duty and IHT: Change to a rare conditional IHT and CGT exemption

The recent Budget announced a small change to the rules concerning tax relief for national heritage assets.

Certain assets including some land and buildings and works of art can be exempt from both IHT and CGT when they pass to a new owner if they have national, scientific, historical or artistic interest. This exemption is available both on lifetime and death transfers and is designed to prevent assets deemed to be of national importance being sold to fund IHT.

The Government’s heritage advisory agency advises on which assets qualify. The exemption only applies if the new owner of the asset makes an agreement or undertaking to look after the asset, keep it in the UK and make it available for the public to view. If any one of these conditions is breached or the asset is sold then tax becomes payable.

The exemption was also available under the old Estate Duty regime and often Estate Duty was chargeable at a significantly higher rate than IHT is now. The new legislation applies to assets that have previously received an exemption under Estate Duty. It will prevent the ability to use current legislation to pay IHT at a lower rate than the Estate Duty which would have been payable where a charge arises on a death. Instead, HMRC will be able to elect for either IHT or estate duty to be paid. Depending on the original date of death, the rate of estate duty was as high as 85%! This aligns the position with the treatment for lifetime transfers and will apply to a chargeable event occurring on or after 16 March 2016.

Alongside this measure, there were two other changes. Firstly, a charge will be created on objects which are currently subject to an Estate Duty exemption and which have been lost unless the Commissioners are satisfied the loss was outside the owner’s control. Secondly, certain museums and public galleries that benefitted from the legislation will be brought back into the scope of the exemption. They are currently unable to benefit because of their status as independent charitable trusts but had been able to benefit when they were maintained by a local authority.

There is plenty to think about; please contact Daniel Bisby or your usual Mercer & Hole contact if there is anything you would like to discuss.