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A Guide to the Pre-Owned Assets Charge

The Pre-Owned Assets Charge (“POAC”) was introduced to catch arrangements which were successfully avoiding the reservation of benefits rules for inheritance tax (“IHT”). Broadly speaking, these rules say that if you give away an asset but continue to benefit from it, the value of that asset continues to form part of your estate for inheritance tax purposes.

POAC applies to all arrangements entered into since 18 March 1986.

POAC is retrospective (“retroactive” in Government speak!) It is intended to encourage people to elect to opt back into the IHT regime rather than to create a further source of revenue.

The basics of the charge

  • Someone gives away an asset but continues to use that asset/occupy it or has the potential to do so.
  • That person suffers a charge to income tax on the annual benefit he is deemed to have received as a result.
  • The income tax charge can be avoided by electing that the property should instead be caught by the inheritance tax reservation of benefit rules.

The charge itself

There are different charging regimes applying for different categories of assets:

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 land charge will be calculated on a market rent for an assured shorthold type lease.

Occupation of a small part of the property will be charged as occupation of the whole under arrears legislation, but occupation for part of the year only will result in 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.


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 £5,000 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 £5,000 level of benefit is exceeded, the charge to income tax is calculated on the whole value of the benefit, ie the first £5,000 is not disregarded.

Tax planning is a complex area which is continually changing. Make sure that you take advice from expert tax planning solicitors with regards to your own particular circumstances.

We can help. Our solicitors prepare wills, trusts, probate and estate planning for clients throughout Wiltshire, Hampshire and Dorset from our offices in Salisbury, Fordingbridge, Andover and Amesbury.

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