Conditional Exemption for Heritage Property: what is it and how does it work?

13 Oct 2021

Arthur Byng Nelson

The Conditional Exemption Tax Incentive Scheme

The Conditional Exemption Tax Incentive Scheme provides an opportunity to defer payment of Inheritance Tax or Capital Gains Tax when an item of pre-eminent importance is passed to a new owner either by gift or by inheritance.


There are six qualifying national heritage categories but broadly the item in question should be demonstrably of national scientific, historic or artistic interest. Artworks, objects, land and buildings all fall within the potential scope of conditional exemption. 

What are the conditions?
In order to be able to benefit from the scheme and to defer tax the owner must provide undertakings. These are:
•    to retain and preserve the item;
•    to make the item available for visits by the public;
•    to keep the item in the UK. 

A further point is that owners are requested, but not obliged, to give notice of an intention to sell an item which is conditionally exempt from tax.

In more detail

Any question as to whether an item fulfils the pre-eminent criteria is decided by the Arts Council who provide their findings to HMRC.

If the item is to be transferred during lifetime (outright gifts, or gifts to trusts) the donor must have owned the property for at least six years prior to the transfer. For items transferred on death no minimum periods of ownership apply.

The item must be available to the visiting public for at least 28 days of the year and, outside of those days, available for visit by appointment. If such visits by the public are impractical or particularly difficult in the circumstances, one alternative for the owner is to agree a loan to a suitable museum or gallery that would wish to display it. Note that in this writer’s experience this process is not always straightforward.

What might bring the arrangement to an end?

A chargeable event that triggers the withdrawal of the tax deferral can be one of the following:
•    A material breach of the one of the undertakings. For example the item is found to have been damaged by neglect or has been removed from the country or the public access arrangements have failed (note that HMRC temporarily relaxed conditions on account of COVID).
•    A sale or disposal of the conditionally exempt item. Note however if sold to a museum or institution listed in Schedule 3 of the Inheritance Tax Act 1984 this transfer will not be a chargeable event.
•    A transfer of ownership on the death of the owner unless the new owner applies successfully for conditional exemption.

Should you require any advice on applying for the Conditional Exemption Tax Incentive Scheme or any heritage tax matters please contact Arthur Byng Nelson, Legal Director, Director, Private Client, Art & Cultural Assets, Philanthropy.