Opting out of the pre-owned asset tax charge

If it is to be made at all, the election must be made for the first tax year in which an individual would otherwise be chargeable to POAT by reference to his enjoyment of the asset in question, ie his occupation of the land or his possession or use of the chattel, or any other property for which it has been substituted.

The effect of the election is twofold.

Firstly, the POAT charge will never apply to the individual’s enjoyment of the asset concerned or any asset which is substituted for it.

Secondly, so long as he continues to enjoy the property (or substitute property), he is treated for IHT purposes as having made a gift with reservation of benefit, with the following results:

• a)if, at the time of the individual’s death, the property continues to be subject to a reservation of benefit, the ‘chargeable proportion’ of the property (see below) is treated as forming part of his estate for IHT purposes (FA 2004, Sch 15 para 21(2)(b)(i), (ii); FA 1986, s 102(3) (subscription sensitive))
• b)if, during the individual’s lifetime, the property ceases to be subject to a reservation of benefit, it does not form part of his estate on death. He is, however, treated as having made a potentially exempt transfer (PET) of the ‘chargeable proportion’ of the property