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Wealth planning & personal taxation)

Pre-owned assets tax (POAT

POAT affects all transactions entered into since 17th March 1986 and results in an income tax charge on some previously successful inheritance tax planning arrangements. It combines the income tax and inheritance tax regimes and is retrospective.

In order to reduce your estate for inheritance tax purposes it is necessary to give assets away and not to enjoy any continuing benefit. If you do then the gift will not be effective for inheritance tax purposes even though the asset will no longer belong to you. Various methods were employed to enable the person making the gift to continue to take a benefit but the introduction of POAT closed this loophole in some circumstances.

POAT applies to transactions involving land, tangible assets and can also apply to assets held in trust. It does not apply to assets which are considered to be still in the ownership of the person making the gift, i.e. those to which the reservation of benefit rules apply, or to assets for which a market rent is paid.

POAT applies where an individual:

(i) occupies land, or has the use of chattels; and

(ii) has either;

If POAT applies then income tax will be charged on either the rental value of the land or at 5% on the capital value of the tangible asset unless the value is under £5,000. However, if the value exceeds this amount even by �1 then the whole amount will be taxable. If the taxpayer pays income tax at the higher rate then the POAT rate will be 50% (45% from April 2013).

The rules are extremely complex and it would be wise to take advice prior to making any gift as some transactions unrelated to inheritance tax planning may be caught, for example arrangements between cohabitees buying property together and inter-family equity release schemes.

PWT Advice would be happy to guide you through this complex tax.

For a no-obligation discussion, call us on + 44(0)345 833 9025

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