Personal Tax

Opting out of the pre-owned asset tax charge

Produced by Tolley
  • 08 Apr 2022 08:11

The following Personal Tax guidance note Produced by Tolley provides comprehensive and up to date tax information covering:

  • Opting out of the pre-owned asset tax charge
  • Effect of election ― land and chattels
  • The chargeable proportion
  • Effect of election ― intangible property
  • Making the election
  • Time limit
  • Withdrawing or amending the election
  • Late elections
  • Whether or not to make the election
  • Relief from possible double charge to IHT

Opting out of the pre-owned asset tax charge

Pre-owned asset tax (also known as POAT) is an income tax charge on the benefit of free or low-cost enjoyment of assets which the taxpayer once owned but no longer owns. It was aimed at schemes designed to avoid the inheritance tax (IHT) gifts with reservation rules, although the 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the acquisition of an asset for its use by a third person, and to those where the asset initially disposed of has been replaced by other assets which are then enjoyed by the taxpayer.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.

For further discussion of the regime generally, see the Pre-owned asset tax overview guidance note.

The guidance below discusses how an individual can make an irrevocable election to opt out of the pre-owned asset tax regime in relation to a particular asset. The downside is that the asset will then form part of the estate for IHT purposes. Separate elections can be made for different assets.

Effect of election ― land and chattels

If it is to be made at all, the election must be made for the first tax year in which an individual would otherwise

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