The following Personal Tax guidance note by Tolley provides comprehensive and up to date tax information covering:
The income tax charge introduced by FA 2004, Sch 15 is often referred to as pre-owned asset tax (POAT).
Its purpose is to tax the benefit of free or low-cost enjoyment of assets (often the family home) which the taxpayer once owned but no longer owns. It was aimed at schemes designed to avoid inheritance tax (IHT). These schemes used so-called artificial structures to avoid the IHT ‘gifts with reservation’ rules and, in the absence of a POAT, enabled people to remove assets from their estate chargeable to IHT whilst continuing to enjoy the benefits of ownership. See the Gifts with reservation ― overview guidance note (subscription sensitive). However, the POAT legislation is very widely drawn and you cannot assume that it will apply only where an avoidance scheme has been used.
Pre-owned assets are assets previously owned by an individual taxpayer and disposed of since March 1986. The charge extends to cases where the taxpayer has funded the acquisition of an asset for its use by a third person, and to those where the asset initially disposed of has been replaced by other assets which are then enjoyed by the taxpayer. Separate rules apply to land, chattels and intangible property. Certain transactions are excluded from the charge and certain situations exempted.
The legislation was heavily criticised upon its introduction for 2005/06 onwards, not least because of its retrospective nature, ie it can effectively tax transactions which may have taken place many years before it came into effect. The legislation is also an oddity in the way it uses an income tax charge to counter perceived IHT avoidance. However, there can be no doubt that POAT is here to stay for the foreseeable future, and it should not be overlooked in any review of an individual’s tax position.
In order for the POAT to apply
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