Tax Relief for Heritage Assets


By Peter Smith


In the summer 2015 edition of In Trust, Emily Minett outlined the tax benefits of donating a heritage asset to the nation during lifetime under the Cultural Gifts Scheme. Tax advantages


can also apply to heritage assets on death, such as valuable works of art, sculptures, manuscripts, or land and buildings of national, historical, scientific or artistic interest.


If the beneficiaries wish to retain ownership of the asset,


a “conditional exemption” from the inheritance tax (“IHT”) otherwise due on the asset on death, can be claimed by the executors. This is subject to a number of restrictions, including giving an undertaking to allow public access, which can be quite onerous, but which will defer payment of the IHT liability until the asset is sold or disposed of. Alternatively, the heritage asset can be offered to the nation in


lieu of IHT, in which case the agreed value of the item will be treated as a credit against the tax payable. It is important to note that an application under this heading cannot be made until after the Grant of Probate has been issued. Where, as is usually the case, at least part of the IHT has to be paid before probate is granted, it is vital to make clear the intention to offer an asset in lieu, so that the appropriate refund can ultimately be claimed. In both cases the asset needs to be of sufficient importance, or


“pre-eminent” in the words of HMRC. But this does not mean that the asset has to be an internationally renowned work of art. We have recently been involved in a case where a collection of historical documents of mainly regional importance has been accepted in lieu of IHT by being donated to the appropriate local museum. It does undoubtedly help if an institution such as a museum or public art gallery has expressed an interest, but ultimately the allocation will be at the discretion of HMRC. Careful planning is required to give an estate the best opportunity to claim this relief. psmith@wedlakebell.com


Easy guide to pension fund death benefits


By Clive Weber


What happens to a pension fund on death? On the member’s death the pension fund trustee (the pension provider or its associated company) can usually choose between these options:


(1) outright distribution; (2) retaining the fund on flexi-access basis (“Flexi-Access”); or (3) payment to a trust established by the member during his life (“By-Pass Trust”).


Retaining the pension fund in Flexi-Access potentially enables the pension fund to pass down successive family generations and in a tax effective manner as explained below. The ultimate tax planning tool!


Is tax payable on a pension fund on death? No inheritance tax (“IHT”) is payable on the member’s death providing the scheme rules are in the usual discretionary form.


No income tax is payable where the member dies under age 75 except in special circumstances.


If death is on or after age 75 – income tax applies at the individual recipient’s marginal income tax rate if and when drawn in the case of Flexi-Access.


Who decides who benefits from the pension fund after death? The pension fund trustee is in control but will usually follow the member’s letter of wishes.


Therefore the terms of the letter of wishes are key and the member should obtain advice in completing the letter. The standard forms supplied by pension providers vary in quality, and the Pensions and Private Client teams can help you arrive at the best outcome.


What action should pension members be considering? Completing and reviewing your letter of wishes is just as important as making your Will. After the family home, your pension fund is often your next most valuable asset.


Selecting the right option (outright distribution, Flexi-Access or By-Pass Trust) depends on both family circumstances and tax considerations.


In some cases the reassurance of ‘family’ trustees provided by a By-Pass Trust may be valuable. In contrast, Flexi-Access will be operated by an ‘anonymous’ pension provider. A By-Pass Trust may help ‘protect’ beneficiaries from life events such as matrimonial disputes and bankruptcy. For other members the potential significant tax advantages of Flexi-Access may be paramount. The Pensions team and Private Client teams can help you ensure a holistic approach to your estate planning.


The above Q and As relate to money purchase pension arrangements and are based on current tax legislation which may change.


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