pre-owned assets regime

In the 2004 Budget, the government introduced new legislation relating to ‘Preowned Assets’. This legislation was intended to levy tax on individuals involved in complex Inheritance Tax Avoidance, however, it actually catches numerous unwitting taxpayers. It came into effect on 6th April 2005.

The legislation effectively charges tax on persons who have disposed of assets but have continued to benefit from those assets. The charge can arise by virtue of transactions that occurred or circumstances that existed as far back as March 1986! The circumstances giving rise to a POA charge may well arise as a consequence of entirely innocent and practical financial arrangements, for instance, supposing a father helps his daughter to buy a house by giving her a gift of cash to use as a deposit. Several years later, the father becomes ill and moves in to the house with his daughter so that she can care for him. In this instance, a POA charge would be due on the father.

The POA charge itself is generally calculated as a percentage of annual rental values and allowance is made for any consideration paid by the individual, in certain circumstances. There is a de minimis exemption (£5,000 for 2005/2006), however, tax will be due at the individual’s marginal rate on charges above this sum.

The scope of this regime is extremely far reaching and, should you have any queries in respect of your own affairs, or the possibility that this tax may be applicable to your circumstances, please feel free to contact us for more information.