A guide to understanding pre-owned asset taxes in the UK

In the world of taxes, it’s essential to understand how the pre-owned asset tax (POAT) regime in the UK might affect you. Let’s break it down in simple terms to help you navigate this aspect of taxation with ease.

What is POAT?

POAT is a tax that targets individuals who have passed on ownership of assets but still benefit from them. These assets can include property, like houses or valuable items, and even intangible assets such as cash. The aim of POAT is to prevent people from avoiding taxes by giving away assets or using other methods to keep enjoying their benefits without then being taxed on the asset at death.  It was introduced to combat forms of inheritance tax (IHT) avoidance.

What does POAT cover?

POAT is pretty broad and covers many situations where people continue to enjoy assets they no longer officially own. This includes cases where assets are transferred to family members, put into trusts, or sold for less than their true value.

How does POAT work?

Under POAT, the taxable value of the benefit you get from a pre-owned asset is calculated based on its yearly value. This value is then subject to income tax at your normal rate. Instead of looking at how much money the asset makes, POAT uses a fixed method to work out the tax owed.  It basically means that the Inheritance Tax HM Revenue & Customs (HMRC) may have missed out on is then recuperated through an income tax charge.

What do you need to do?

If you fall under POAT rules, you’ll need to report your pre-owned assets to HMRC each year. This means telling them about the assets you still benefit from, their value, and how much tax you owe on them. It’s important to get this right to avoid penalties and legal issues.  There is also a limited option to treat POAT as a gift with reservation of benefit for inheritance tax purposes and advice should be sought on the best approach.

Are there ways to reduce POAT?

While POAT is quite strict, there are ways to lessen its impact. Some assets might be exempt from POAT, like those used for business purposes or valued below a certain amount. You can also explore legitimate ways to restructure your assets or use tax-efficient methods to lower your POAT bill.

As always, advice should be sought from a legal and tax adviser to ensure you do not fall foul of any tax rules, which you may be unaware of.

Further guidance and support

If you require any further guidance or support on the issues covered in this article, please get in touch with our Private Client team today.

Our team of specialists Wills and inheritance tax lawyers are based in Maidstone and Canterbury and are ready to help with any legal advice you may require so please get in touch.

This content is correct at time of publication