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Don't get caught out by POAT says Kent Lawyer

12 December 2006

As the January 31 deadline approaches make sure you know where you stand with pre-owned assets tax (POAT) before you submit your self-assessment tax return, warns Sarah Bogard, chartered tax adviser at leading south east law firm Furley Page.

POAT came into force on April 6, 2005 to prevent people avoiding inheritance tax – but you could be liable on arrangements made as far back as 1986.

Sarah Bogard said: “If you don’t report a POAT charge you could end up paying a penalty. Unfortunately many people could be affected by the new rules without even realising it but you are obliged to declare it on your tax return.

“The system is complex - and the rules relate not only to property but also to furniture, paintings and intangible assets such as shares and insurance policies. If you’re in doubt it is crucial that you seek advice as HM Revenue & Customs won’t inform you if you’re liable.”

Typical examples where POAT applies are:

If you gift cash to someone who then within seven years purchases a property and you move into that property. The same also applies if the property is sold and a replacement property is purchased which you then occupy.

If you gift cash to your unmarried partner who uses it to fund the purchase of a property in his/her sole name. If you occupy the property – even if you subsequently marry or register your civil partnership – you will be liable for POAT.

A scheme – often known as the home loan or double trust scheme – whereby you take the value of your home out of your estate for inheritance tax purposes but continue to live there.

If you sell a share of your home to your son or daughter – perhaps to release some personal cash for you- and you continue to live in the property.

If you are liable for POAT it triggers an annual charge calculated on the deemed rental value of the benefit of using the asset, regardless of whether you no longer own it.

“One option is to make an election,” advises Sarah. “This brings whatever gift you originally made back into the charge to inheritance tax in your estate without having to pay a POAT charge. However, there is a strict deadline for making an election. For any arrangements made before April 4, 2006 it’s January 31, 2007.”

For more information contact Sarah Bogard

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