Every week, Mansion Global poses a tax question to real estate tax attorneys. Here is this week’s question.
Q: Are there any incentives to offset property taxes if I purchase a historic property outside of London?
Not really. “The circumstances where there might be some tax benefit are very obscure, nor would one buy a historic property in order to get this tax benefit,” said Nick Dunnell, partner at Farrer & Co. law in London.
“The U.K. tax system does not provide any particular incentives to acquire historic properties,” agreed Elliot Weston, a tax partner in the London law office of Hogan Lovells International who specializes in real estate. However, some tax incentives are available when selling or donating historic properties, he noted.
As long as the owner (and any new owner) signs a legally binding document to look after the property and give the public reasonable access, “buildings of outstanding historical interest can be conditionally exempt from capital gains tax on disposal and inheritance tax on death,” Mr. Weston said. Capital gains tax is generally charged at 28% for second homes, he said, and inheritance tax is usually charged 40% on the part of the estate that exceeds the exempt threshold.
The owner and Her Majesty’s Revenue and Customs (HMRC), the U.K. government’s tax department that grants the historic designation and tax exemption, negotiate the amount of public access, said Catherine Hill, partner at Forsters legal firm in London. Generally, access to the interior varies from 28 days a year for smaller buildings to 156 days for larger buildings, she added.
The exemption covers not just the heritage home but also the land and any objects historically associated with the property, Ms. Hill said.
Take, for example, a 14th-century castle in Oxfordshire. The property received an exemption because it played an important role in the English Civil War, she said, and its 1,800 acres of parkland and farmland were preserved so that “the castle can be appreciated within its historic setting.”
This exemption isn’t for everyone, she noted, because “opening one’s home to the public in a way that doesn’t interfere with family life won’t always be achievable. However, for some, it can be an important means to retain historically important estates within a family for generations.”
There’s historic homes & then there’s this English estate dating to the Year 956.
— Mansion Global (@MansionGlobal) June 3, 2017
Owners of historic houses also can take advantage of tax concessions to set up an endowment to maintain the property, she said. This can be done without triggering capital gains tax or inheritance tax when cash or investments are transferred into it. Like any other trust, this fund pays capital gains and income taxes, she said, but it offers savings on inheritance tax. Finally, there is an absolute exemption from capital gains tax on disposal of such historic properties to certain heritage bodies, such as the National Trust or Historic England, Mr. Weston said.
The conditions and qualifications of these various reliefs are complex, so expert advice should be sought, Ms. Hill said.
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