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Protecting the UK Heritage


Julie Butler - Expert Author

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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 2007.

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 artistic interest.
  • Land, which, in the opinion of the Board, is of outstanding scenic or scientific interest.
  • 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 architectural interest.
  • 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].

The undertaking

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?

The disposal

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 transfer.

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;, Website;

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Article Published/Sorted/Amended on Scopulus 2008-01-09 16:06:16 in Tax Articles

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