Pre-Owned Assets Tax

[bob.fraser@towrylaw.]

Grateful for some clarification on the workings of this tax. If a parent has transfered his/her home to the children with an eye on avoiding long term care costs being recovered from the parents assets, then after April 05 this will be liable for POAT. But if the parent does not fill in a self-assessment form, how in practical terms is the IR going to find out that a benefit has arisen? Presumably it may be found during probate, but if the estate is within the IHT nil rate band then deeming the gift to be a gift with reservation would have no tax implication.
Thanks in anticipation.

[cranleys]

Bob

Under self-assessment you have the responsibility to notify. You could apply the same situation to any tax return where you need to be aware from your advisor what information to include and sign that it is a true statement. What you are proposing is fraud which no advisor - we are not hear to inform you of how to dodge but legitimate ways to move some problems you may face.

Always available to assist.

Colin Davison
colin.davison@cranleys.co.uk

Editor - Property Tax Secrets 2005

Cranleys Chartered Accountants
01256-766655
07766-714000

[Lambs]

I may be wrong on this point, but I thought that where you 'happily' fell within extant rules for "Gifts with Reservation," then POA Tax intentionally doesn't overlap - i.e. if your property remains in your estate under the GWR rules, then POA can go and take a running jump...? I believe that your final point is sound.

I too should be grateful if anyone else could clarify.

[Huw Williams]

Whilst I agree that it should not matter if the estate is small and a gift-with-reservation would not affect the tax payable, I did not think it was the way the legislation worked.

If POA Tax applies, then it applies unless you have elected to pay tax on a gift-with-reservation before the deadline.

This could be one of the "unfortunate" cases the legislation catches alongside the tax planning it was designed to nullify.

Huw Williams
Nottingham

0115 914 6846

enquiries@huwwilliams.co.uk

[bob.fraser@towrylaw.]

Thanks for your comments. The reason for the query is that many individuals have solicitors transfer the home into the names of the children even where IHT is not an issue. Their motiviation is an intention to avoid the home being taken into consideration for long term care costs. These solicitors are now concerned about the POAT implications of their actions, and I am trying to clarify these. The message that I am getting is that these clients will have to notify the IR as to their actions, and elect for the GWR exemption (which will not affect them). Is that a fair summary?
Thanks again.
Bob

[johnfkavanagh]

I agree with Lambs. The effect of paragraphs 11(3) and 11(5) of Schedule 15 to the 2004 Finance Act is to exempt an individual from the pre-owned assets charge in relation to land, chattels and intangible assets where he or she is within the gift with reservation rules for for IHT purposes in relation to the property concerned. In the straightforward example quoted by the querist, there would be no POAT for the simple reason that there is a GWR. While you can elect out of the POAT and into the GWR regime, you cannot elect out of a GWR and into the POAT.

I hope this helps.

John Kavanagh CTA
UK Tax Consulting Limited
www.uktaxconsulting.co.uk

[Lambs]

Well, I am flattered
There you go, living proof that it is better to dumb and lucky, than smart and unlucky. (i.e. I was right but by sheer good fortune...)

Actually, I had already 'sweated' through B McCutcheon's two-part review of the POA rules in Taxation, 16th and 30th September... thanks to HW for making me toil through it again!

I note in the aforementioned article that the Revenue appears to retain the option to charge under GWR rules if it feels that they apply - i.e. you work on the basis that it's not caught under the GWR rules and stump up the tax for the POA charge; the Revenue decides it was a Gift With Reservation after all - I guess in all likelihood on review of the estate on death - and when they realise the IHT will yield more tax revenue than the annual POA charges, which would be a nasty shock. The article says that you'll get back the tax already paid under the POA rules, which would be cold comfort. The Revenue is not exactly renowned for its generosity when it comes to Repayment Supplement, either.

With regard to BF's later post, I am something of a novice in this area, but I thought that where appropriate, the Benefits Agency is allowed to "write assets back" into one's capital means assessment where they feel that they have been removed purely/mainly to obtain benefits entitlement - one of the ways in which this assertion could be refuted is (was?) to contend that the prime motivation was actually to avoid IHT? Perhaps you could let me know if this is a genuine issue for consideration.

[johnfkavanagh]

I think that Lambs is being overly modest. I have seen his contributions in response to other queries on this forum and not only are they always in the stated spirit of the forum (i.e they offer initial guidance rather than "you need (my) professional advice" blather or blatant advertising, neither of which can be much use to querists) but the ones I have seen have been technically spot-on. If Lambs is not a tax adviser by profession, he has certainly missed his vocation!

Seriously, though, Lambs makes a very important point. Just because the Treasury and the Revenue have now devised a statutory means of ensuring that there will be no repetitions of the likes of the double trust scheme, etc., it certainly does not mean that they have necessarily given up on bringing these schemes within the GWR provisions in actions in the tribunals and the courts, especially if the execution of the schemes has been less than perfect.

Wathc this space for a succession of hearings before the Special Commissioners in relation to these schemes.

John Kavanagh CTA
UK Tax Consulting Limited
www.uktaxconsulting.co.uk
mail@uktaxconsulting.com

[Lambs]

Ah, Mr. Kavanagh, you are too kind...and, I think, in need of something to help you sleep, if you are contributing at this ungodly hour!

You have me 'banged to rights' I am afraid, 'though those who know me don't normally include the word 'profession' in the same sentence, unless preceded by 'insult to.' A 'failed' accountant, like so many of my colleagues is perhaps a more accurate description.

I am a little perturbed by the Revenue's approach to this new legislation, and it is one of several developments in recent times, which is why I decided to seek out precisely this kind of community.

I find it not a little annoying that the Professional Contractors' Group has, to my mind, shown us the way forward insofar as how to respond to new developments in the tax world, in the 21st Century: whilst I am a fan (if sadly not a disciplined reader) of Taxation, and its founding principle, I am amazed at the apparent lack of alacrity with which we, as working professionals, respond to current developments in taxation. We are in the midst of watching the Inland Revenue undergo some of the most dramatic upheavals ever, and I fear we are standing idly by.

I should add, however, well done Mr. Editor, in setting this up in the first place!

Whew, rant over, soap box back in the corner.

[webmaster]

Lambs,

You are welcome. When TaxationWeb was set up, the idea was to provide UK taxpayers and tax professionals with a one-stop-resource for learning about tax and exchanging ideas. Tax Tip Forum is an extension of this. We are delighted at the response we are getting from our visitors. Thank you to everyone for contributing and making the whole thing happen.

Martino Matijevic
Mr. Editor
contact details at the Contact Us page