Pre-owned assets tax

By Tolley

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

  • Pre-owned assets tax
  • Territorial scope of the income tax charge on POA
  • The charge to tax on land and chattels
  • Excluded transactions
  • The charge to tax on intangible assets
  • Exemptions from the POA income tax charge
  • Election for the application of the IHT provisions

Where a donor has made a gift of property and continues to use or benefit (or may benefit) from that property in some way, he may have made a gift with reservation of benefit for the purposes of inheritance tax (IHT).

However, this will not be the case where:

  • a donor makes a gift of cash and the donee uses the money to buy an asset which the donor then enjoys
  • sophisticated planning arrangements ensure that the property that the donor enjoys is not the subject matter of his gift

In these cases, the donor may fall within the special annual charge to income tax that is levied on pre-owned assets (POA). These are assets he previously owned or assets whose acquisition he financed since 17 March 1986. The assets that are specifically targeted by the POA regime are land (including buildings), chattels and certain intangible property.

For an explanation of the rules on gifts with reservation of property, see the Gifts with reservation ― overview guidance note.

Territorial scope of the income tax charge on POA

The charge to income tax on POA applies to UK resident persons in respect of property situated in the UK. This means that the charge does not apply to land, chattels or intangibles situated:

  • outside the UK, where the donor is UK resident but not UK domiciled (for the purposes of IHT) in a tax year
  • anywhere in the world where, during any tax year, the donor is not resident in the UK

FA 2004, Sch 15, para 12(1), (2)

The charge to tax on land and chattels

More on Gifts with reservation: