A Guide To The Pre-owned Assets Charge

The Pre-Owned Assets Charge ("POAC") is a catchall inheritance tax provision

. POAC prevents people from gifting assets whilst still gaining the benefit. This ensures that assets that are benefiting the owner remain part of the taxable estate. The provision was introduced to prevent avoidance of the reservation of benefit rules.

POAC applies to all arrangements entered into since 18 March 1986.

POAC is calculated retrospectively (also referred to as 'retroactively'!). The idea is that people will be encouraged to return to the IHT regime and not set up another source of tax.

The basics of the charge.

Someone gives away an asset but continues to use that asset/occupy it/has the potential to do so.

That person suffers a charge to income tax on the annual benefit he is deemed to have received as a result.

The income tax charge can be avoided by electing that the property should instead be caught by the inheritance tax reservation of benefit rules.

The charge itself.

There are different charging regimes applying for different categories of assets:

- Land.

- Chattels.

- Intangibles held in a Settlor interested trust.

The land charge.

If you occupy land and either give it away and continue to occupy it, or you contributed to its purchase in the first place (for example, you gave your daughter money, she bought a flat, and you live in that flat) - the land charge will apply.

The market value for rent for an assured shorthold lease will be used to determine the land charge.

Under arrears legislation, if you occupy a small part of the property, it will still be classed as an occupation of the whole. However, occupation of a small part for only part of the year will mean a reduced charge.

The chattels charge.

Similar to the land charge, but the benefit taxed will be based on a percentage (5%) of the capital (market) value of the chattels.

Intangibles.

Stock, shares, insurance policies (land and chattels excluded) where placed in a lifetime settlement from which the settlor can benefit.

The charge to income tax is based on a percentage of the capital value of the settlement

Level of the charge.

Benefit of up to 5000 per annum in total is disregarded. If the total from land, chattels and intangibles is less than this there is no liability to POAC.

If the 5000 level of benefit is exceeded, the charge to income tax is on the actual level of benefit, i.e. the first 5000 is not disregarded.

Tax planning is a complex area which is continually changing. Make sure that you take advice from expert tax planning solicitors with regards to your own particular circumstances.

by: Tim Bishop

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