Protecting the UK Heritage
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Protecting the UK heritage – and ensuring the correct accounting and tax
treatment of our beautiful landscape
Originally published 19 July 2007
A simple visit to view the UK landscape makes everyone aware of a beautiful
heritage that must be protected. It is a rather sad confession that whilst
appreciating the beauty, it also develops the consideration – “how is that shown
in the balance sheet”? And possibly – “I wonder if there are any tax breaks”?
Firstly anyone who has enjoyed considering such questions needs to “get out
more” and the answers are FRED 40 and, yes very favourable.
Accounting for heritage assets – FRED 40
The ASB published FRED 40 in December 2006 to develop proposals set out in a
Discussion Paper in January 2006. The comment date for FRED 40 was 20 April
Heritage assets are assets that have historic, artistic, scientific,
technological, geophysical or environmental qualities and are held and
maintained principally for their contribution to knowledge and culture. The term
would include landscape and coastlines as well as historic buildings,
archaeological sites and collections held by museums and galleries.
It is relatively obvious that a large area of the landscape and rural
historical buildings are owned by small trading farmers and landed estates.
Generally these entities are not limited companies due to the tax
disadvantages of this legal entity e.g. no business asset taper relief (BATR),
trapped losses, complex inheritance tax considerations etc. On the basis that
unincorporated trading vehicles should follow the corporate lead valuations,
heritage property is something that will have to be considered.
Legal entities will have to account for heritage assets separately from the
disclosure requirements of FRS 15 and would be required to carry them at
valuation, where it is practicable to obtain valuations. These valuations would
not have to be performed by an external valuer and there is no specific interval
between valuations, provided that the value is appropriate at the balance sheet
date. Changes in value would be recognized in the Statement of Total Recognised
Gains and Losses (STRGL) and on disposal the value would be adjusted to net
proceeds, with any resulting adjustment also being recognised in the STRGL.
Where it is not practical to adopt a valuation approach, any acquisitions or
disposals should not be reported in a way that implies they are gains or losses
and there should be a primary statement that reconciles total gains and losses
to changes in total reported net assets. This appears to imply that items can be
added or deducted from the balance sheet but will not report in the profit and
loss account (P&L) or STRGL.
The net effect appears to be that gains on heritage assets will not be able
to be used to increase profit and help with the hobby farming position; they are
a capital asset.
For charities, donated assets should be recorded in the P&L at current value
unless it is impracticable to obtain a current value and accounted for as above,
depending on whether valuation can be obtained or not.
It is expected that if the proposals are accepted they will result in an
amendment to the SORP “Accounting for Charities”.
What are the tax reliefs?
Heritage property includes land and buildings and the landowner might seek to
claim IHT deferral relief in the appropriate manner. Obviously, tax planning
exercises which include a claim under BPR (Business Property Relief) and APR
(Agricultural Property Relief) would be much more satisfactory as it is a 100%
direct saving and not a deferral. However, there would be circumstances where
BPR/APR fail and the property might qualify as ‘heritage’ – the tax relief
opportunities should not be overlooked if this occurs. Farms and landed estates
are expecting a lot of change and must adjust accordingly. It can be considered
that such a move, i.e. a claim for heritage property, particularly with the need
to allow ‘reasonable access’ for viewing, counts as a diversified activity. This
can be integrated with other diversified activities such as tourism.
What property qualifies?
Relevant property should be one of the following [IHTA 1984 s 31(1) as
amended by FA 1998].
- Pictures, prints, books etc which (or collections of which) appear to the
Board to be of pre-eminent value for their national, scientific, historic or
- Land, which, in the opinion of the Board, is of outstanding scenic or
- Any building for the preservation of which special steps should, in the
opinion of the Board, be taken by reason of its outstanding historic or
- Any area of land, which, in the opinion of the Board, is essential for the
protection of the character and amenities of such as a building.
- Any object which, in the opinion of the Board, is historically associated
with such a building.
What is the relief?
As with woodlands relief, the relief for heritage property is a deferral of
the charge, rather than the abolition of liability that arises from 100% BPR/APR.
Unlike woodlands relief, relief for heritage property is available on lifetime
transfers of value and transfers of value made by trustees, as well as the
deemed transfer made by death.
The relief operates to make a transfer of value an exempt transfer to the
extent to which the value is attributable to the property accepted as ‘heritage
property’ [IHTA 1984 s30]. In order to obtain this exemption, a claim must be
submitted. A claim can be made in respect of:
- Any transfer on death; and
- Any other transfer of value provided that the transferor or his spouse, or
the transferor and his spouse between them, have been beneficially entitled to
the property throughout the six years ending with the transfer; or the
transferor acquired the property on death and the property was then subject of
a conditionally exempt transfer [IHTA 1984 s26A].
In the case of a PET of heritage property, no claim for conditional exemption
can be made until the death of the transferor and no claim at all can be made if
the property has been sold before the [IHTA 1984 ss3A-C]. However, if the
property has been transferred to the Government in satisfaction of IHT [IHTA1984
s230], the transfer becomes exempt [IHTA 1984 s26A].
Undertakings are required in respect of the maintenance of land and buildings
designated as heritage property for the repair and preservation of its
character, for the retention of objects associated with the building concerned
and, also, for reasonable access to allow viewing of the heritage property by
the public [IHTA 1984 s32(4)]. Is this something the farming community will be
able to cope with?
Where there is a disposal of property that has been designated as heritage
property for the purpose of IHT relief, the conditional exemption is reviewed.
Current practice is that if the disposal does not materially affect the heritage
entity, the designated heritage property status remains in force.
When a chargeable event occurs and the conditional exemption ceases, tax is
charged on an amount equal to the value of the property at the time of the
chargeable event [IHTA 1984 s33(1)]. The value will be measured by the sale
proceeds or market value as appropriate [IHTA 1984 s33(3)].
The tax is calculated by reference to the circumstances of the ‘relevant
person’. This will be the person who made the last conditionally exempt
transfer, save that where there have been two or more such transfers within the
last 30 years the Inland Revenue may select whichever of the transferors they
chose [IHTA 1984 s33(5)].
Breach of undertaking
On a breach of undertaking (or expiry without a new undertaking, unless a
disposal occurs to a defined heritage organisation) a charge to IHT crystallizes
on the basis of the then value of the property, but (broadly) by reference to
the rate applicable to the person who made the last conditionally exempt
Action plan for professional advisers
Ensure that clients who have potential heritage property are aware of the tax
advantages and those who have already claimed the exemption are aware of the
need to comply with conditions of the new potential disclosure requirements.
About the Author
Article supplied by Julie Butler F.C.A. Butler & Co, Bowland House, West Street,
Alresford, Hampshire, SO24 9AT. Tel: 01962 735544. Email;
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Article Published/Sorted/Amended on Scopulus 2008-01-09 16:06:16 in Tax Articles