Five-year service: pre-owned assets and the £1m nil rate band for couples with property

BKL tax adviser Terry Jordan has written an article for Taxation magazine on pre-owned assets and the £1m nil rate band for couples with property.



  • The POAT provisions came into effect on 6 April 2005.
  • The relationship to gifts with reservation of benefit.
  • The scope of POAT and the charging provisions.
  • Electing back into the inheritance tax regime.

Rather like the 28.5 litre Beast of Turin, a Fiat 28,500 that was recently driven for the first time in 100 years, time flies, and it is now necessary to revisit the pre-owned asset valuations that were last updated in 2010 (see my article One careful owner).

The income tax charge on pre-owned assets, known as POAT, was announced by the Labour government on 10 December 2003 and came into effect on 6 April 2005.

The key date, however, is 18 March 1986 when inheritance tax was introduced since transactions on or after that date are potentially within the POAT rules.

The primary legislation is contained in FA 2004, Sch 15 and is supplemented by regulations and guidance. The charge was targeted at people who had previously given away assets and continued to benefit from them while avoiding the inheritance tax gifts with reservation of benefit (GRB) provisions.

A key point is that there is no pre-owned asset charge if the GRB rules apply or if the relevant transfer was made before 18 March 1986.

Had I given my house to my children on 17 March 1986 and occupied it rent-free since, there would be no pre-owned asset charge. Had I made the gift a day later there would still be no pre-owned asset charge but it would be part of my inheritance tax estate under the GRB rules.

Scope of the charge

The POAT charge is residence-based and does not apply to any person for any tax year during which he is not resident in the UK. For non-UK domiciled persons, the charge applies only to UK situs assets. The deemed domicile provisions of IHTA 1984, s 267 are imported into the POAT legislation.

The main charging provisions are:

  • land – FA 2004, Sch 15 para 3;
  • chattels – FA 2004, Sch 15 para 6; and
  • intangible property comprised in a settlement where the settlor retains an interest – FA 2004, Sch 15 para 8.

For the charge to apply to land or chattels, the taxpayer must fall within the disposal (have given away) condition or contribution (have funded the purchase of) condition as well as occupy the land or be in possession or have the use of the chattel.

In simple terms, the charge on land is the open-market rent for the occupied property (or the part referable to what had been given away or funded) and the charge on chattels is the market value multiplied by the official rate of interest.


The charge to income tax by reference to Enjoyment of Property Previously Owned Regulations SI 2005/724 were laid before the House of Commons on 16 March 2005 and came into force on 6 April 2005.

In summary, they:

  • set the rates of return and valuation dates;
  • require land and chattels to be valued five yearly;
  • exempt part sales on “equity release” terms; and
  • relieve a potential double inheritance tax charge.

Regulation 2 provides that the prescribed valuation date in relation to a taxable period is 6 April in the relevant year of assessment or, if later, the first day of the taxable period.

Regulation 4 deals with the valuation and rental value of land and chattels. It provides that the values initially obtained hold good for five years. The guidance makes clear that the valuation is to proceed in accordance with the provisions of IHTA 1984, s 160 (market value).

Finance Act 2004, Sch 15 para 13 provides that if the aggregate annual taxable amount for any particular taxpayer does not exceed £5,000 the individual is not taxable. If the person is taxable under more than one category it is the total figure that matters; spouses are assessed separately.

Election into inheritance tax

The provisions on elections are in FA 2004, Sch 15 para 21 to para 23.

Paragraph 21 applies to land and chattels and para 22 to intangible property held within a settled interested trust.

Since the effect of the election is to treat the relevant property as subject to a reservation of benefit for inheritance tax purposes, it will suffer an inheritance tax charge.

The exception is when the taxpayer ceases to enjoy the relevant property or any property that is substituted for the relevant property more than seven years before his death.

The election is to be made on form IHT 500 (under the Income Tax (Benefits Received by Former Owner of Property) (Election for Inheritance Tax Treatment) Regulations SI 2007/3000. The explanatory notes are on the accompanying form IHT 501.

The time limit for making the election is no later than 31 January in the year after the first year in which the taxpayer is liable to pay the income tax charge.

The election may be made by the holder of a general or enduring power of attorney and, it is assumed, by the holder of a registered lasting power of attorney, although the explanatory notes still make no reference to lasting power of attorney. It cannot normally be made by a deceased’s personal representative.

Once made, the election can only be withdrawn on or before the 31 January deadline.

Taxpayers who have been within the de minimis exemption under para 13 because the annual taxable benefit as at 6 April 2010 did not exceed £5,000 will now be able to make an election if the taxable benefit as at 6 April this year exceeds the relevant figure.


As before, taxpayers who have been paying the POAT charge as the price of preserving the anticipated inheritance tax saving will need to obtain relevant rental and capital value figures as at 6 April this year.

Those no longer covered by the de minimis exemption will need to consider whether they should elect back into the inheritance tax charge by 31 January 2017.

In 2010, I speculated that, had the Conservatives been elected that year with a clear majority, some form of scrappage scheme would have been implemented for POAT.

We now have a commitment from the new government to an effective combined inheritance tax nil rate band of £1m for a property-owning married couple (or civil partners) with children or grandchildren from 6 April 2017.

This might enable some taxpayers to elect back into the inheritance tax regime and out of the POAT charge.


The article is also available on the Taxation website.



Sam Inkersole

In 2022, Sam won the Taxation’s Rising Star award at the Taxation Awards in and was named in the Accountancy Age 35 Under 35.

Jon Wedge

While Jon’s client work focuses on the financial services sector, he also oversees the firm’s assurance service, as well as supporting the trainees following in his footsteps.


Elana joined us in 2017 as an ACA trainee, after graduating from Durham University where she had studied languages. She is now a manager in our assurance team.


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