Pre-Owned Asset Tax
The Finance Act 2004
introduced a new charge to income tax with effect from 6
April 2005, called Pre-Owned Asset Tax (POAT). POAT will
affects anyone who has made a gift of property which they
continue to enjoy, but which no longer forms part of their
estate for Inheritance Tax (IHT) purposes (for example, the
gift of a main residence which the previous owner continues
to live in rent free is not an effective gift for IHT
purposes and therefore not caught by POAT). The impact of
the new rules is not yet known, as it affects transactions
made from 17 March 1986 onwards.
POAT will be of concern in the following two situations:
- Where a person who
has made a gift of land or other property since 17 March
1986 subsequently occupies that land or has the use of
the property.
- Where a person has
made a gift of cash since 17 March 1986 which has been
used to purchase land or other property which that
person subsequently occupies or uses.
POAT produces a charge to
income tax at the usual rates. In the case of property, the
tax will be charged on the notional market rent that the
property would produce, and with other property it will
presume a return of 5% of the asset’s value.
The legislation affords the opportunity for those caught to
elect, before 5 April 2007, to unravel the gift, or to have
the asset treated as part of their estate on death. This may
be complicated, and anyone who is concerned that they might
be liable under the new rules should seek legal advice.
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