Heritage Maintenance Funds

Heritage Maintenance Funds (HMFs) are a type of tax favoured trust set up to support the preservation, maintenance, and public accessibility of outstanding historic buildings or properties officially designated for this purpose, including any associated land and objects.

Any property or assets transferred to an HMF are held by the trustees to be dealt with in accordance with the formal terms of the trust deed.

Typically, there are three trustees, one of which HM Revenue & Customs (HMRC) require to be a professional trustee, usually a solicitor or accountant.

Who can benefit from a Heritage Maintenance Fund?

The types of heritage property that can benefit from a Maintenance Fund are grade I or II star listed buildings, land, and historically associated chattels capable of qualifying from conditional exemption from inheritance tax (IHT). The property itself may not have to be open to the public and does not have to be currently conditionally exempt but must merely qualify as such.

How to set up a Heritage Maintenance Fund

If a person is interested in setting up an HMF to help preserve and maintain their property, then it would be a matter of entering into negotiations with HMRC and their heritage team to have:

• The constitution of the settlement agreed,
• Approval that the assets to be settled are of character and amount appropriate for the purpose of the trusts, and
• The property designated for this purpose. This may require certain undertakings to be given by the owner of the property regarding preservation and public access, but these must be reasonable. It’s not an automatic requirement to open the property to the public.

Required terms of the trusts

The terms of an HMF must require that in the period of six years beginning from the date on which the assets were added, none of the capital of the trust or income can be applied otherwise than on:

• Expenditure on property owned by the HMF itself,
• Defraying expenses of the trustees, and
• Making distributions to qualifying heritage charities and national bodies.

The terms of the trusts must also require that income cannot at any time be applied otherwise than as noted above. Income can be accumulated if not immediately spent, if permitted by the terms of the settlement.

Once the six-year period has ended, the terms of the trusts can allow the trustees to advance capital amongst a wider class of beneficiaries. The membership of the wider class of beneficiaries will normally include the settlor, their spouse, children, and remoter issue. It could also include non-heritage charities and other bodies. There is no restriction placed by the legislation on who could be a potential beneficiary of capital outside the six-year period. However, income accumulated prior to such an advance cannot be paid out as capital to the wider beneficiaries.

Before setting up an HMF, it’s important to be aware of the various conditions that must be satisfied for a trust to qualify as an HMF. Our article on the tax reliefs available to the owners of heritage property covers this in more detail.

Inheritance tax benefits

The main tax benefit of an HMF is that they are exempt from inheritance tax (IHT).

This exemption applies to both IHT payable on death and to IHT payable on lifetime gifts to trusts. The gifts with reservation of benefit rules also do not apply, even if the settlor or their spouse are potential capital beneficiaries.

The assets of the HMF are not “relevant property” and therefore are exempt from periodic IHT charges that are levied on trusts every 10 years. The application of capital for the qualifying purposes noted above is not subject to an exit charge.

However, if capital is paid out or distributed otherwise than for a qualifying purpose (such as the maintenance of a heritage property) or for resettlement onto a new HMF, an IHT charge is levied on the current values, subject to the usual reliefs. The rate of IHT payable depends upon the length of time the assets have been held within the fund and whether the fund was created as a result of a transfer during lifetime or on death.

What about income tax?

Income received and capital gains realised by the trustees of an HMF are taxed as for any other discretionary trust or settlement. If the settlor or their spouse are potential beneficiaries, the income is assessable upon the settlor in accordance with the usual settlor-interested trust rules, unless the trustees make an election to the contrary. If the HMF is settlor-interested, then income tax is suffered at the settlor’s marginal rate.

If the HMF is not settlor-interested, or the election is made, then income tax is suffered by the fund at the full trust rate, currently 39.35% for dividend income, and 45% for other types of income.

Payments made by trustees out of income are not trust distributions for tax purposes or deductible as an expense against rental or other income received by the fund. If they are made to the settlor of the HMF who is taxed on the fund’s income as it arises, then the payments are disregarded for tax purposes when calculating the profits or income of any trade or rental business carried on by the settlor at the designated property. If payments are made to any other owner of the designated property, then the amounts received need to be included in calculating the profit or income of any trade or rental business that they might be carrying on.

Capital gains realised by the trustees of an HMF are subject to the full rate of capital gains tax (CGT), currently 24%, after deduction of any annual exemption. They can never qualify for Business Asset Disposal Relief (BADR).

The gift of assets to an HMF during lifetime is treated as a disposal at market value of the underlying property. However, any gains arising can be held over if the settlor so elects. The normal restrictions on CGT holdover relief, where the settlor, their spouse or minor children are beneficiaries, do not apply.

If the HMF is part of a larger trust, then for tax purposes, it’s treated as a separate settlement from the rest of the larger trust. As of April 2026, changes to Agricultural Property Relief (APR) and Business Property Relief (BPR) are set to take effect. The UK government has launched a consultation exploring how these changes will apply to property placed into trusts, which you can learn more about in our article and Private Wealth podcast episode. These changes will make HMFs a more attractive option. Assets held with an HMF can themselves qualify for APR/BPR, which will help reduce the IHT charge on capital appointments for non-qualifying purposes.

In summary

A Heritage Maintenance Fund is a trust. It does not qualify for the income tax or CGT advantages of charities, but it does enjoy IHT exemptions where assets and the income therefrom are set aside to meet known or expected maintenance obligations for designated heritage properties.

It can take time to negotiate with HMRC and have a property designated as the beneficiary of an HMF. It’s therefore advisable for heritage property owners to consider setting up a pilot HMF during their lifetime with a nominal endowment (at least £10,000) with the aim of getting the HMRC designations in place in contemplation of the addition of further assets to the HMF on death.

How we can help

These types of trusts can be very useful, but they are not always appropriate for every circumstance. We recommend seeking professional advice before taking any action.

If you’d like to discuss the application of Heritage Maintenance Funds to your particular circumstances, please get in touch with Tim Adams or Will Leonard.