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The ‘pre-owned assets tax’ (POAT) is an income tax charge levied on the ‘benefit’ earned on any property that had been formerly owned by the user (or for which he has provided funds to purchase), but of which he still enjoys the use, unless sold to an unconnected person in a bargain at arm’s length.

The benefit is calculated by reference to the rental value of the property. This is the rent that would have been payable if it had been let to the taxpayer at an annual open market rent.

There are exemptions to the charge and a ‘de minimis’ amount (£5,000 per tax year per spouse/civil partner), but it is not possible to transfer any unused exemption from one to the other.

Note:
•    Either GWRB or the POAT rules could apply in the situation where a donor has gifted the property, remaining in residence but paying no or minimal rent.

•    If POAT applies and it is not viable to meet the tax bill but there is less concern about the IHT bill, an election can be made for the GWRB rules to apply instead of the POAT.

Example:
In 2008 James gave his son £250,000 which he spends on acquiring Greenacres. James moves into the property on 6 April 2013; 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.

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.