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The ‘Pre-Owned Assets Tax’ (POAT) is an income tax charge levied on the ‘benefit’ earned on any property currently owned by another but of which the first person had either previously owned and given away, or otherwise funded (e.g. by providing the cash for purchase) unless sold to an unconnected party in a bargain at arm’s length. The tax may also apply to property used but which belongs to someone to whom the first person made a cash gift in the last seven years.

The ‘benefit’ is calculated by reference to the rental value of the property, i.e. the rent that would have been payable if it had been let to the taxpayer at an annual open market rent.
There is a ‘de minimis’ amount of £5,000 per tax year per spouse/civil partner, but it is not possible to transfer any unused exemption from one partner to the other.

NOTE:

• Either GWRB or the POAT rules could apply in the situation where a donor has gifted property but remains in residence paying no or minimal rent. 
• If POAT applies and it is not viable to meet the ongoing income tax bill but there is less concern about the eventual IHT bill, an election can be made for the GWRB rules to apply instead of the POAT.

Example:
In 2008 James gives his son Jim £250,000 which he spends on acquiring Greenacres. James moves into the property on 6 April 2014; he will be subject to the POAT charge as from that date. If the market rent of the property is £5,000 and no rent is paid then there will be no POAT charge. If the market rent is £10,000 and James pays a rent of £5,000 the full £10,000 will be subject to the POAT charge – but with a reduction for any rent which James is legally obliged to pay.

NOTE:

If James had moved into a house that Jim had bought with his own money and then James gave him funds which were used for improvements, then there will be no POAT charge; this is because James’ money has not been used to acquire an interest in the property. Likewise if there is a gap of at least seven years since an outright gift of money, the resulting asset is not ‘traced back’ to the gift/donor.