IHT – Heritage property conditional exemption and woodlands deferral relief

IHT planning before the 2024 autumn budget typically centred around maximising Agricultural and Business Property Relief (APR and BPR). However, given the combined cap of one million for these reliefs coming into effect from April 2026 onwards, this article looks at what unlimited deferral reliefs could also be available. This is a high-level appraisal of other reliefs, which are inherently technical so please contact us if you would like to discuss your situation in detail.

Pre-eminent land, property and chattels (most commonly works of art) can all qualify for Heritage Property Relief from IHT and capital gains tax (CGT). The reliefs, also known as conditional exemption, encourages private owners to retain, preserve, and make available for public viewing and benefit items of national heritage.

Provided assurances are given by the owner regarding preservation and public access, and the property or assets are not sold to a private party unwilling to continue the undertakings, then the property remains exempt from IHT.

To qualify for relief, the asset(s) must be one of the following (taken from HMRC guidance);

• buildings, estates or parklands of outstanding historical or architectural interest
• land of outstanding natural beauty and spectacular views
• land of outstanding scientific interest including special areas for the conservation of wildlife, plants and trees
• objects with national scientific, historic or artistic interest, either in their own right or due to a connection with historical buildings

HMRC consults with relevant advisory bodies, for example Natural England or historic bodies before determining whether assets qualify.

The conditional exemption can apply to transfers during lifetime, for example property settled into trust, and on death. Where a property transferred during lifetime, as a potentially exempt transfer (PET), becomes chargeable to IHT within 7 years an exemption claim will also be needed.

Where assets are designated under the heritage exemption it is possible to establish a trust maintenance fund to generate income used to maintain the heritage property. The maintenance fund receives favourable IHT treatment despite the income generating assets within the maintenance fund not being heritage exempt in their own right.

The value of growing timber in a deceased estate can be deferred until sale by making an election for Woodlands Relief. The value of land where the trees are growing remains immediately chargeable. Woodlands Relief is only available on death.

The relief only defers the tax, as the value of the timber is chargeable to IHT when the timber is sold/disposed of.

Example: An elderly landowner dies in May 2026 leaving a net estate of £5,500,000, comprising:

• Let Agricultural land worth £2,000,000, on a post 1995 tenancy, qualifying for 100% APR.
• In-hand farm and business assets (including stock and machinery) worth £2,500,000 qualifying for BPR.
• A farmhouse worth £500,000. The farmhouse was occupied until death, it is characteristically a farmhouse and is surrounded by the land farmed in hand. It is expected to qualify for APR.
• Commercial woodland worth £500,000 (£200,000 being the land value and £300,000 the timber value).

The landowner was not married, had no children and left their entire estate to their nephew.

The IHT due without a claim for woodlands relief under the new APR/BPR cap would be;

In the same scenario, if Woodlands Relief is claimed on the value of the timber the IHT reduces to £710,000. This is a £60,000 deferral only.

In the future if the timber is sold, having increased in value to £500,000, then IHT at 40% will become due on the net timber sale proceeds. For example, if after felling costs, sales commissions and replanting expenses the net timber sale proceeds are £350,000 then IHT of £140,000 would become due.

The cashflow saving of £60,000, being 20% IHT, in the deceased estate has quickly become overshadowed by a full 40% IHT bill later when the woodland is sold.

In deciding whether woodlands relief is claimed it is important to weigh up the relative advantages and disadvantages. Hence where possible 100% BPR has historically been favoured over Woodlands Relief.