IHT relief for assets held for the benefit of the nation

Since the Autumn Budget 2024, individuals across the UK have been reassessing their potential inheritance tax (IHT) exposure as a result of the proposed changes. In particular, many business owners are focused on the 5 April 2026 deadline as up to that date, a trading business can potentially be passed on without any IHT charge which protects the integrity of the business.

From 6 April 2026, based on the current proposals, many business owners and their heirs will need to find ways and means to settle not insignificant IHT liabilities. In a debate in parliament last week, it was outlined that as a result of the proposed changes to business property relief (BPR), HMRC expects 1,000 estates will have additional IHT to pay in the 2026/27 tax year due to holding unlisted trading company shares.

As a result of the proposed IHT changes, some of those impacted are looking at other IHT reliefs available, including some long-standing but lesser-known reliefs such as the Conditional Exemption or Acceptance in Lieu.

Both reliefs are centred around culturally significant assets and consecutive governments have provided IHT relief for assets made available to the public and the benefit of the nation. However, the reliefs work differently and require highly specialised advice to determine which assets are suitable and likely to be accepted.

Conditional Exemption is a relief that defers a charge to IHT on a specific asset on death of the owner. The person inheriting the asset is required to make undertakings to HMRC that they will maintain and insure the asset to specified levels and, critically, the asset must be opened to the public or made available for viewing for 28 days in a year. Historically, BPR might have relieved the value of a stately mansion opened to the public. Now that that relief is to be restricted, Conditional Exemption is an alternative to be explored to preserve the business asset.

Acceptance in Lieu operates so that pre-eminent assets, which could include paintings or archives, are “sold” to the nation to be displayed in a museum. The valuation point is key and a “douceur”, a payment to sweeten the deal, is offered to the estate to reduce the tax due overall. The sale proceeds are used to settle the IHT liability due on other assets.

These are niche reliefs that require first and foremost, a culturally significant asset. Step one is identifying whether an asset reaches that threshold. Owners of castle and stately home businesses will want to revisit their succession plans and reliefs. More broadly, business owners are advised to check the paintings on the walls, the jewellery in the safe and the classic cars in the garage. Could they be a way of helping the business to continue by reducing cash calls on the bank balance?