The pre-owned asset charge – an unseasonal New Year greeting

One of the most controversial aspects of the Pre-Owned Asset Charge (Sched 15 Finance Act 2004) was its retrospective effect, imposing the new tax charge as a result of transactions which may have taken place as long ago as March 1986. For those who would find the new income tax charge an unacceptable burden, imposed on their occupation of property paragraph 21 of Sched 15 Finance Act 2004 permitted the taxpayer to elect that the ‘formerly owned’ property he occupied should be treated as subject to a reservation of benefit under s102 Finance Act 1986. It will then of course be chargeable to IHT as part of his estate unless he moves out, or starts paying a commercial rent, more than seven years before his death. Where the arrangements had been made and the occupation commenced before the Pre-Owned Asset Charge was announced, the first year for which the charge will be payable will be 2005-06, ending 5 April 2006 (s84 (2) Finance Act 1984). The effect of paragraph 23 of Sched 15 is that, in those cases where the charges would first be levied, the election must be made by 31 January 2007. In the event that the election has already been made it can be amended or revoked before the date.