Tax Treatment of Pre-Owned Assets
Release date: March 2006

This measure is aimed at people who have entered into contrived arrangements to dispose of valuable assets to avoid Inheritance Tax while retaining the ability to use those assets.

On 10th December 2003 the Chancellor introduced a new tax – Pre-owned Asset Tax. This free-standing income tax charge will apply to assets disposed of after 17th March 1986 where the original owner receives some benefit from those assets after 5th April 2005. This will broadly follow the model of the benefit-in-kind charge on employees.

The proposed charge will not however apply where:

• the property in question ceased to be owned before 18th March 1986
• property formerly owned by a taxpayer is currently owned by their spouse
• the asset in question still counts as part of the taxpayer’s estate for inheritance tax (IHT) purposes under the existing ‘gift with reservation’ rules
• the property was sold by the taxpayer at an arm’s length price, paid in cash
• the taxpayer was formerly the owner of an asset only by virtue of a will or intestacy which has subsequently been varied by agreement between the beneficiaries; or
• any enjoyment of the property is no more than incidental.

There will be a threshold below which the cash value of benefits in a given year would be disregarded. The Government has decided to set this threshold at £2,500 per year.

For further information contact David Hogg
david.hogg@close-thornton.co.uk

BACK