Tax Campaigns

The majority of historic houses, castles and gardens in HHA membership, and in the country as a whole, are not owned by government agencies or charities, and do not as a result enjoy a favourable tax status.  Indeed, many houses operating commercial activities and opening to the public continue to be treated by Her Majesty's Revenue and Customs (HMRC) as if they were private residences, and not also the small businesses, cultural guardians, and income generators in the local economy that they undoubteldy are.

The HHA works for a framework of tax policies and practice that enables owners to conserve Britain's historic houses and gardens for the benefit of the nation and for future generations.

Pursuing this objective involves demonstrating to the HMRC, Parliament and others how the application of current tax law affects the ability of owners to maintain their properties and historic collections and proposing practical and cost-effective improvements to the tax system - to channel resources into both urgent and long term maintenance and stewardship.

Since about 1998, the overall tax regime applying to historic houses has become tighter, as is shown by legislation and policy changes over this period:

•  tightening of the rules on conditional exemption from Inheritance Tax
• abolition of the One Estate Election
• the changes to the tax treatment of trusts in the 2006 Finance Act

At the same time the economic pressures on historic houses have also increased: competition from other leisure attractions for the public, including from subsidised free entry to national galleries and museums; rising costs of conservation (faster than the rate of inflation); the virtual disappearance of grants for restoration; and increased costs of compliance with regulation.

As a result the backlog of urgent repairs at historic houses has risen 50% from £260m in 2003 to £390m in 2009.

The positive contribution of historic houses to the life of the nation, and the problems they face, is set out in "Inspirational Places - the Value of Britain's Historic Houses".

Returning to tax, the case for fiscal incentives to encourage the maintenance of historic houses of national importance, open to the public, was recognised in the 2006 Report of the House of Commons Culture, Media and Sport Select Committee on "Protecting and Preserving our Heritage".
 
Since then, the HHA has produced two major proposals of its own:

Historic Properties Maintenance Relief would provide a limited tax relief (worth up to £25,000 per year for an individual house) on the eligible costs of approved maintenance in nationally important historic houses open to the public or providing educational facilities.  The proposed scheme would help to address the most urgent repairs and defray annual running costs for maintenance.  The HHA estimates that 100 - 200 historic houses might take up such a scheme, generating up to £20 million of additional maintenance work per year, on top of the £80 million currently spent in houses open to the public, at a total cost to the Exchequer of up to £10m per year.

Heritage Maintenance Funds (HMFs) were created by the Government of 1976 to enable historic house owners to channel resources into ring-fenced maintenance funds, sheltered from Capital Transfer and subsequently Inheritance Tax.  An excellent idea, the 135 HMFs in existence are, however, generally not much used, because the income is now taxed at the top rate (50% from 6 April 2010) and there is no relief from Capital Gains Tax for proceeds reinvested in the HMF or used for maintenance.   

The HHA estimates that reducing the tax rate for income from HMFs used only for maintenance of the historic house to which the HMF applies (which must be of national importance and open to the public) to 20% would encourage 30 - 60 more HMFs to be set up and allow these funds to grow, enabling longer term projects for maintenance to be envisaged.  The total cost to the Exchequer would be likely to be significantly less than £10 m per year, before the offsetting advantages of increased maintenance work, and therefore income tax and VAT, are considered.  

The HHA has received a generally favourable response in principle to both these proposals - which could work alongside each other - from the political parties and other heritage organisations.  In the light of the current weak state of the public finances no early progress can be expected, but the HHA will continue to press for both proposals, as either would reduce the need for more expensive work later, and both would reduce the pressure on owners to sell works of art to fund major repairs. 

Other tax issues in which the HHA is involved:

The HHA:
 
supports the Heritage Alliance's campaign for a reduced rate of VAT on the repairs to listed buildings

has worked with the HMRC to make the implementation of the 1998 changes to Conditional Exemption from Inheritance Tax more reasonable, although relatively few new applications are being made

works with English Heritage and Natural England to ensure that Heritage Management Plans and, within them, Collection Management Plans, are reasonable and practical

is exploring, with the political parties and other heritage organisations, the scope for the rules on Acceptance in Lieu of Inheritance Tax, especially in situ, to be made more practical for owners and in turn, more beneficial for the public wishing to see historic art and other objects in their original setting

reports its work on tax in the Tax Update page of Historic House, published quarterly for members

is extremely grateful for the support of Saffrey Champness, leading tax accountants, in providing comprehensive, general, Tax Notes for the use of Members, providing advice in response to Members' tax queries and supporting the work of the HHA's Taxation and Political Committee.