The Pre-Owned Assets Charge - A Simple Guide
The Pre-Owned Assets Charge ("POAC") is an inheritance tax charge introduced to support the reservation of benefits rules.
The charge prevents avoidance of the rules by claiming that any asset that has been given away, yet from which the original owner still receives the benefit, remains part of the owner's estate for inheritance tax purposes.
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.
If someone has gifted an asset, yet still uses or occupies it or f has the potential to do so.
The income tax taken is thus calculated on the annual benefit that person is considered to have received.
If it is decided that property falls under the reservation of benefit rules and thus comes under the inheritance tax umbrella, income tax can be avoided.
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 difficult and consistently developing area of law.
It is always advisable to seek the assistance of specialised tax planning solicitors when dealing with your individual financial affairs.
The charge prevents avoidance of the rules by claiming that any asset that has been given away, yet from which the original owner still receives the benefit, remains part of the owner's estate for inheritance tax purposes.
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.
If someone has gifted an asset, yet still uses or occupies it or f has the potential to do so.
The income tax taken is thus calculated on the annual benefit that person is considered to have received.
If it is decided that property falls under the reservation of benefit rules and thus comes under the inheritance tax umbrella, income tax can be avoided.
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 difficult and consistently developing area of law.
It is always advisable to seek the assistance of specialised tax planning solicitors when dealing with your individual financial affairs.
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