Pre-owned assets tax (POAT) meaning

See Q&A: An individual (A) holds a commercial premises that is leased to a third party. A transfers a 90% interest into a life interest for himself, with the remainder to pass absolutely to his adult children. He keeps the other 10% outright. Do the gift with reservation of benefit rules bite? Would the pre-owned assets tax rules be in point if the property were ever sold? This reply does not cover A's personal tax position on settling the rented property into trust. A gift made after 8 March 1999 of an undivided interest in land counts as a gift of property with a reservation unless the following applies: the donor does not occupy the land (section 102B(3) ...

The rules concerning settlor‑interested trusts are anti‑avoidance measures designed to stop a settlor from sidestepping tax on assets they have not fully given away. This Practice Note primarily addresses the income tax position of settlor‑interested trusts, while also sketching the capital gains tax (CGT) and inheritance tax (IHT) implications. For an at‑a‑glance overview of their tax treatment, refer to the table in Practice Note: Taxation of trusts—summary of tax treatment of settlor interested trusts. Income tax—settlor interested trusts The principal rule under which income can be treated as the settlor’s own is set out in section 624 of the Income Tax (Trading and Other Income) Act 2005 (ITTOIA 2005), which HMRC includes within the ‘settlements legislation’ (also called the ‘settlements code’ or ‘settlor code’). This general rule is subject to specific exceptions (see ‘Exceptions to the general rule’ below). Although commonly applied to settlor‑interested trusts, the provisions are broadly framed and may therefore extend to other arrangements that are not formal or express trusts; this is considered in...

The pre-owned asset tax (POAT) is an inheritance tax (IHT) counter-avoidance provision, brought in by Schedule 15 to the Finance Act 2004 (FA 2004), and was intended to penalise users of IHT avoidance arrangements, though its reach goes wider than such planning in practice. POAT operates as a standalone yearly income tax charge on particular individuals, termed ‘chargeable persons’, specifically in respect of advantages they obtain as a former owner of property, or of assets traced from that property. The advantage may, for example, consist of occupying land, using or holding chattels, or having the ability to draw income or capital from a settlor-interested trust that contains intangible property. The statutory wording can be somewhat unclear at points. Nonetheless, as FA 2004, Sch 15 is designed to defeat structures under which a taxpayer enjoys assets that no longer form part of their estate for IHT, any doubtful points ought to be interpreted with that objective in view and context. Background Before 17 March 1986, a...

Private Client England & Wales glossary A Abatement When, after settling the deceased’s funeral costs, debts and liabilities, the remaining estate cannot satisfy all legacies in full, the gifts are reduced accordingly, unless the Will shows a different intention. In a solvent estate, the order for reduction appears in Part II of Schedule 1 to the Administration of Estates Act 1925. Refer to Practice Note: Payment of legacies. Accruals basis Where income is taxed on an accruals basis, it is attributed to a given tax year by reference to the number of days within that year during which the activity giving rise to the liability accrued. See Practice Note: What is the basis of income tax?. Accumulation and maintenance (A&M) trust A form of non‑interest in possession trust designed to benefit children and young people up to 25, which received favourable inheritance tax treatment between 1975 and 2006. See Practice Note: Accumulation and maintenance trusts—IHT [Archived]. Accredited Legal Representative (ALR) ...