Can I avoid inheritance tax using loophole of owning a historic listed building?
My wife and I are both approaching 80 and we own our home as tenants-in-common.
It is situated in a conservation area, and could well be listed as it is an original stone coach house dating back to 1860.
I am reasonably au fait with the proposed changes being introduced in April 2027, which will bring pensions into the inheritance tax calculation.
This will create a problem for me as I have saved most of my life into a Sipp, and consequently have pension monies that will take me well over the inheritance tax exemption limits.
It has been mentioned to me that if our home is established as a listed building, then the value of our home will be excluded from the inheritance tax calculation.
It is our intention to pass our home down to our children thereby establishing the extra £350,000 inheritance tax exemption.
The value of our home is probably around £650,000, which is higher than the current inheritance tax home exemption.
The problem is that I cannot seem to find out if the idea of a listed building being outside the scope of inheritance tax has any validity or is it simply a lot of hot air?
Heather Rogers replies: How lovely to have such an interesting and unusual property to call your family home.
I will explain the rules and I will then answer your specific question at the end.
There are some special rules regarding not just inheritance tax exemptions but also capital gains tax exemptions for what are known as 'heritage assets'.
The relief is given under the Conditional Exemption Tax Incentive Scheme.
However, first of all we have to define what a heritage asset is and furthermore, the asset and its owners have to meet all the criteria to claim relief.
There are many beautiful buildings in this country, but the term 'heritage asset' does not just apply to buildings, it can apply to any asset of significance.
What defines a heritage asset?
A heritage asset is one of the following:
- Buildings, estates or parklands of outstanding historical or architectural interest;
- Land of outstanding natural beauty/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 a historical building.
Are there any conditions the owner has to follow?
Yes. The owner of the heritage asset must agree to:
- Look after the item;
- Make it available for the general public to view; usually without prior appointment for objects (eg works of art) at least for a certain number of days each year;
- Keep it in the UK.
The conditions above forming the agreement are normally known as the 'undertakings'.
What tax exemptions are available?
Under what is known as the Conditional Exemption Tax Incentive Scheme, the assets can be exempt from inheritance tax and capital gains tax when they pass to a new owner, either as the result of a death or as a gift.
The idea is twofold:
- To avoid noteworthy land/buildings being broken up into smaller lots due to the sale having to take place to pay inheritance tax on the death of the owner
- To avoid noteworthy national assets being sold and leaving the country.
What happens if a heritage asset is sold?
If either the owner of the heritage asset does not keep to the undertakings or sells the asset, the conditional exemption is withdrawn and capital gains tax would be due on the sale.
Additionally, if relief from inheritance tax was claimed when the asset transferred to the new owner, who has now decided to sell, that inheritance tax relief will be clawed back.
Is a listed building a heritage asset qualifying for conditional exemption?
Not necessarily. A listed building is one of special historic or architectural interest.
Buildings can be listed in three ways:
Grade I – these are deemed of exceptional interest;
Grade II*- very important buildings;
Grade II – special interest buildings.
More about how this is determined can be found here: Principles of selection for Listed Buildings.
You can find out if your building is already listed here.
Who decides what is a heritage asset?
HMRC will determine which assets qualify for conditional exemption on the advice of the government's various heritage advisory agencies.
If you have a query about an asset, either yours or one on the list, you can contact the HMRC Heritage Team to get help and advice. Include HMRC's reference number if you have a current exemption.
If you do not have a current exemption or designation, you need to email the team rather than send a letter.
More details can be found here: Tax relief for national heritage assets
A list of heritage assets can be found here (the link is not secure though so be careful if you use it).
How much is inheritance tax?
Tax of 40 per cent is typically levied on a deceased person's assets worth over and above £325,000, which is called the nil rate band, explains Heather Rogers.
Many people are allowed to leave a further £175,000 worth of assets without them becoming liable for inheritance tax, if their home forms part of their estate and they leave it to direct descendants.
That means children, including adopted, step or fostered, and those children's linear descendants.
This extra sum is what is called the residence nil rate band, and it is available to claim on deaths on or after 6 April 2017.
Both protected amounts or 'bands', adding up to £500,000 per person, can be transferred to a surviving spouse or civil partner if unused on the death of the first spouse.
What about your property?
In your case, you have an unusual building but you are not sure if your building is listed, or could qualify as a heritage asset.
You can therefore take the following steps.
1. Find out if your building is already listed here.
2. If it is not yet listed, find out more about the criteria here.
3. Apply for listing of your building here.
4. You can contact Historic England for help and advice.
Customer Services via email at customers@HistoricEngland.org.uk or by phone at 0370 333 0607.
5. You can email the Listing Helpdesk at listing.enquiries@HistoricEngland.org.uk for specific advice relating to listing applications. They will then be able to advise if you have a case for the conditional exemption.
6. If you believe you have a case, contact the HMRC Heritage Team about a conditional exemption: mailpoint.f@hmrc.gov.uk
If your home qualifies as a heritage asset, then you can pass it on free of inheritance tax but the new owner must follow the rules above, as must you.
If it doesn't qualify, then it will be included in your estate in the normal manner.
Ask Heather Rogers a tax question
Heather Rogers, founder and owner of Aston Accountancy, is our tax columnist.
She is ready to answer your questions on any tax topic - tax codes, inheritance tax, income tax, capital gains tax, and much more.
If you would like to ask Heather a question about tax, email her at taxquestions@thisismoney.co.uk.
Heather will do her best to reply to your message in a forthcoming monthly column, but she won't be able to answer everyone or correspond privately with readers.
Nothing in her replies constitutes regulated financial advice. Published questions are sometimes edited for brevity or other reasons.
Please include a daytime contact number with your message - this will be kept confidential and not used for marketing purposes.
If Heather is unable to answer your question, you can find out about getting help with tax here, including sources of free professional advice if you are elderly and/or on a low income.
You can also contact MoneyHelper, a Government-backed organisation which gives free assistance on financial matters to the public. Its number is 0800 011 3797.
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