Is the inheritance tax break that preserves Britain’s stately homes working?

It was something of a surprise to Frederick Richard Penn Curzon, the seventh Earl Howe, when he found himself moving from a west London terrace into Buckinghamshire’s stately Penn House in 1986. Two years earlier, he had inherited his second cousin’s title, but he had thought another family member would get the house.

“The trustees rang me up, I remember it vividly,” he says while we sit and talk in the subtle modern extension of his family’s ancestral home. “‘We do not wish to see Penn House empty, you and your wife are . . . to move in immediately.’ So we obeyed instructions.”

At the time, the contents of Penn — which was largely 19th-century but with its origins in the 17th — were complete. These included, says Howe, a room “full of Fabergé miniatures, pieces of silver, lovely bits of ivory, all in display cases . . . 40 — four-zero — Dutch masters around the wall”. Almost all of this soon disappeared, having been left to the sixth earl’s four daughters, but the paintings, furniture, papers and other heirlooms he did come into, plus those he has bought back since, are here to stay, thanks to a little-known UK tax rule.

Under the Conditional Exemption Tax Incentive scheme, owners of “objects with national scientific, historic or artistic interest” can avoid inheritance tax by guaranteeing HM Revenue & Customs, the UK tax authority, that they will maintain the objects and make them available for the public to view. The scheme also applies to buildings with their contents, down to footstools and feathers, and to entire estates or tracts of land. There are more than 39,000 entries on the scheme’s database, from a toast rack to Blenheim Palace.

The scheme has recently attained new relevance for owners. When chancellor Rachel Reeves unexpectedly limited agricultural and business property reliefs to a combined £1mn in her October 2024 Budget — in effect imposing inheritance tax at 20 per cent above that level — one of the remedies recommended by advisers was conditional exemption.

The list was by no means limited to Old Masters. I chose Japanese Imari bowls, the ermine robes worn for the coronation of George IV, a book of Levantine costumes . . . 

Responding to a freedom of information request, HMRC told the Financial Times it had accepted £1.05bn of objects and property under the scheme between the 2019-20 and 2024-25 tax years.

This scheme, with its roots in the late 19th century but celebrating its 50th anniversary in its modern form this year, is a core reason British country houses are open to visit and why their historic collections, often accumulations of a single family over centuries, are available to see. But it is not without problems, from wonky tech and security concerns to the interest of future generations in maintaining such object-heavy legacies.

Most things on the database are “available to view by appointment through the contact shown”. So, as part of research to check how well the scheme worked, I made contact with Howe’s solicitor and said I’d like to see a few things: some large marble lions, camply snarling outside the house; a Sidney Kent portrait of an earlier Countess Howe; and a pearl necklace given by Henry VIII to Howe’s ancestor Sybil Penn, royal nursemaid in the 1530s and 1540s.

Howe walks me around the older parts of the house, which sits in countryside 30 miles outside central London, to show me the items I listed, and he seems to enjoy telling his family’s history. Sybil Penn looked after the future Edward VI “night and day for his first five or six years, 24 hours a day, and the king was suitably grateful”, he says, as the necklace appears from a jewellery box. The pearls (whose value is more historical than financial) are irregular in size and hue, suggesting their antiquity, but still gleaming. I wonder about the family’s fortunes starting with a woman, yet the earldom passes through men.

On an upstairs landing, we come face to face with the painting of the Countess Howe, arrayed in ermine for the coronation of Edward VII. I had not reckoned on her size, even though the dimensions were listed on the database. The canvas is 9ft tall, the countess near life-size, with an icy stare for the ages.

Howe, who worked in finance before becoming a member of the House of Lords, where he has served on the Conservative front bench, has around 80 items on the database. He is grateful for the scheme — more than grateful. “Thank God for it, actually . . . We would’ve lost some very important things that matter to the story of the family and the history of it.” It is this intertwining of families, art, history, heritage and the nation that makes the scheme an unlikely underpinning of British culture.

The nation has not always kept its heritage in place. After Charles I was executed in 1649, parliament sold off his enviable collection of paintings — Leonardo, Raphael, Titian, Rembrandt — and, thanks to high death duties, country houses were torn down at the rate of one a week in the 1950s.

The government could not say it had not been warned. The Gowers Report of 1950 raised the alarm, saying the owner was “almost always the best person” to preserve the heritage and that tax was “notorious” for preventing them from doing so. But it was not until 1975, under pressure from aristocrats following rumours of a wealth tax, that the government introduced conditional exemption in its current form.

After an owner dies — bathetically called, in the lingo, a “chargeable event” — the heirs can apply for exemption. HMRC and specialist bodies then assess applications, and works which meet the national-interest target (it used to be merely objects of “museum quality”) can be exempted. If an owner chooses to de-exempt a work, for example by selling it, they must pay tax on its current value at the rate of the exemption, which could be estate duty at a rate as high as 80 per cent.

Sarah Roller, director of policy and public affairs at Historic Houses, which has about 150 members who benefit from the scheme, says: “There’s no guarantee that they’ll be awarded the exemption.” No official rule exists for how much houses have to be open, she adds, but 28 days is considered de minimis; her members are often open much more. HMRC sends “mystery shoppers” to check that access is as promised and asks owners to confirm continued possession every five years.

“Everyone thinks it’s an amazing system,” Roller says. “I don’t think any of the owners we represent would take it for granted, they’re aware how important it is for the survival of houses and collections together.”

The only problem most of them have with it, she says, is logistics — and I can vouch for that. I took a sample of 100 entries from the database and tried to request access. I didn’t necessarily want to see the objects; I wanted to see if I could see them. The list was a riot, by no means limited to Old Masters and gilt tables, the trad stuff of country houses. I chose silver spoons, Japanese Imari bowls, the velvet and ermine robes worn for the coronation of George IV, a book of Levantine costumes and much more.

The trouble came when I actually tried to speak to “the contact shown”. More than half of the names were wrong — retired, in jail, dead — so it took a day of resourceful googling and imaginative deduction to come up with a near-complete list of people who might be able to introduce me to the actual owners. I ended up receiving invitations to visit 44 of the 100 items within a week, which — despite the enthusiasm of the owners who did reply — did not make the database feel like a great success. If 22,000 objects are unavailable (56 per cent of the database), the question of public benefit looms.

Owners I speak to deplore this uncontactability or indifference: they think it makes the rest of them look bad, that it puts the scheme at risk.

“It’s the deal,” says Lord Lucas, whose exempt items include portraits by Sir Thomas Lawrence and Sir Joshua Reynolds. “We can only have these things because of the deal. Being crisp and open and helpful in getting things done, making it easier for people to see things they want to — we always do that.”

Though Roller asserts that owners say the scheme works well, facilitating a form of non-institutional history, there are still problems and threats.

Aristocratic owners, led by the third Lord Rothschild, fought off attempts in the 1970s to name them, rather than their representatives, for security reasons. That would have left it “a burglar’s charter”, says Lord Waldegrave, the former cabinet minister, as he shows me an item I requested to see: Horace Walpole’s Memoirs of the Reign of George II in the author’s neat hand, bound in red Morocco leather.

Another owner stresses his openness to visitors but says that “an inquiry from someone unknown to me or to [my contact] needs to be treated with circumspection”. Some “pretty fishy-sounding individuals” do turn up, but others vanish when asked for identification.

If something is stolen, the scheme can even prove perverse. The owner of the country’s pre-eminent private collection of watercolours, based in Norfolk, tells me robbers stole four works between his father’s death and HMRC re-exempting them. Because they can only be exempt if they’re available to the public, the tax authority said he had to pay inheritance tax on art he no longer possessed. Luckily for him, he recovered the works and they were re-exempted.

Because the quality test has become more difficult, fewer works are likely to survive new applications to exempt after the family’s next “chargeable event”. The Norfolk owner points to an animated portrait of a girl in a green dress by Jean-Baptiste Greuze (1725-1805) in his dining room; he was told it would be “on the cusp” of being re-exempted. Some owners will then sell off these works to pay the tax due, possibly sending them abroad — and out of the nation’s cultural arms.

The scheme’s endurance is partly dependent on the next generation even wanting to keep these items. One owner, who describes himself as “bottom of the pile in terms of financial standing”, says he is not convinced his son will have the space or the taste for the portraits of ancestors who look down on us as we talk. “They don’t live that kind of life. They don’t live in that kind of world, you know?”

Some owners are worried that drawing attention to the scheme might cause a cash-strapped government to notice the forgone revenue. HMRC estimates it effectively missed out on £225mn in tax between 2019-20 and 2024-25.

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The Norfolk owner says: “If the government wants £40mn, £50mn [a year], we’ll sell, because that is the only option . . . then who loses out? Not the family, it’s the general public . . . The general public [should] have the ability to see wonderful items which they probably wouldn’t be able to see ever again if they were sold.”

We can make subtle judgments about the scheme. Preserving these items does benefit families but can also demand a life’s work; the country gains access but forfeits tax. As far as Clarissa Levi, art and heritage counsel at law firm Wedlake Bell, is concerned, this is a thoughtful measure for preservation, not a tax-dodging scheme: “I don’t know of any other country that does it better. The preservation of our national heritage is being done in a really nuanced way,” with advantages and obligations for all parties, and heritage the ultimate winner. “Otherwise, people have to pay their tax. I think it works really nicely.”

Levi says that “I absolutely love” that the scheme extends beyond Reynolds portraits and family heirlooms to the smallest items which give a house its character and a family its heritage: “All of the messy reality of our history is taken into account in this way.”

As we sit at the long dining table in Penn House’s modern extension, overlooked by an oil painting of a former family property and overlooking a sun-swept garden, Earl Howe says the scheme has allowed him to live up to the family motto, which refers to their surname. It’s “rather an embarrassing motto”, he says, with its imperial sway, but it seems fitting for modern guardians of heritage too: “Let Curzon hold what Curzon held.”

Through my own peregrinations among country houses, prying into families’ collections and histories and lives, it became clear that, yes, they own these objects but, thanks to the scheme, they also belong to the nation. Brave the shambolic database, find the Rembrandt or the toast rack and discover them for yourself.

visitukheritage.gov.uk

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