Other UK income 35 - Benefit from pre-owned assets

This refers to the Income Tax charge on benefits received where you have owned or contributed to the acquisition of property, pre-owned assets. Further examples of the types of benefit which might lead to a tax charge can be found in the Inheritance Tax Manual - section IHTM44000.

Property here means land and buildings or chattels, for example:

• works of art
• furniture
• antiques
• cars
• yachts
• assets held in a settlement other than land or chattels

You may have to pay tax if you meet both of the following conditions.

The first condition is that during 6 April 2020 to 5 April 2021 you:

• occupied land without paying a full market rent for it
• used or had possession of chattels without paying fully for the benefit
• could benefit from settled property where income from the property you have settled is treated as yours for income tax purposes. Note this condition is not met if the income is treated as yours only because your spouse or civil partner can benefit

The second condition is that at some time since 17 March 1986, you:

• owned the land or chattels you are now benefiting from
• owned and disposed of other assets and used the proceeds of that disposal to acquire the lands and chattels you are now benefiting from
• gave assets to someone else, including cash, and they used it to acquire, directly or indirectly, the land or chattels you are now benefiting from. Note: 'Gave' in this instance includes sales or part sales to connected parties and sales at an undervalue
• you settled assets into the trust from which you can benefit

The amount of benefit on which you will pay tax is:

• for land and buildings the annual open market rent you could obtain if you let the land, including buildings, less any rent you actually paid in the tax year 6 April 2020 to 5 April 2021, further guidance can be found in the Inheritance Tax Manual - section IHTM44010
• for chattels - interest at the prescribed rate on the capital value of the chattels, less any rent you actually paid in the tax year 6 April 2020 to 5 April 2021, further guidance can be found in the Inheritance Tax Manual - section IHTM44016
• for assets other than land or chattels - interest at the prescribed rate on the capital value of the assets, less any tax chargeable on any income and gains arising; further guidance can be found in the Inheritance Tax Manual - section IHTM44025

The prescribed rate is the official rate of interest at the valuation date, which for the tax year 6 April 2020 to 5 April 2021 is 4%.The annual open market rent for land or the capital value of chattels is the figure that applied when you first had to pay tax in respect of pre-owned assets. That value then applies for the next 5 tax years. If you started paying tax in respect of pre-owned assets in tax year 6 April 2006 to 5 April 2007, you will need to have re-established the annual open market rent of the land or capital value of chattels as at 6 April 2011, or the date that the benefit actually began if later in the tax year, to give the value to use for tax years 6 April 2011 to 5 April 2012 until 6 April 2017 to 5 April 2018.

If the benefit arises from assets other than land or chattels in a settlement, the capital value must be established at the start of each tax year, or the date that the benefit actually began if later in the tax year.

If you disposed of, or contributed to, only part of the property that you now benefit from or if you have only benefited for part of the year or if you still retain part of the property, the charge is reduced.

Enter in the 'Any other information' field at the end of the 'Fill in your return' section, how you worked out the benefit or charge that you are now entering here.

If the benefit is from a settlement and tax is payable on the settlement income, then deduct that tax from the benefit you are entering in the 'Tax taken off income' field and provide full details in the 'Any other information' field at the end of the 'Fill in your return' section.

You will not have to pay the Income Tax charge on the benefit if either:

• the property you are benefiting from now could be liable to Inheritance Tax when you die, which includes assets subject to a reservation of benefit' for Inheritance Tax purposes, or which would be subject to a reservation if you did not pay full consideration for the use of the land or chattels
• the total benefit for the year is £5,000 or less, before deducting any rent actually paid
• you gave cash that directly or indirectly funded the acquisition of the assets you benefit from now and the gift was made before 6 April 2006. Note that this date applies where you are first chargeable to tax in the tax year 6 April 2019 to 5 April 2020, you will never be subject to a POA charge for cash gifts made before 6 April 1998

There are several exclusions and exemptions from the charge. For help with deciding whether you are liable and how to work out your benefit further guidance can be found in the Inheritance Tax Manual - section IHTM44000 or the Probate and Inheritance Tax Helpline on telephone 0300 123 1072.

You do not have to pay this Income Tax charge if you elect within the required time scale for your estate to pay the Inheritance Tax on the property when you die. Full details about elections, including how and when to elect and the form to use, are available in the Inheritance Tax Manual - section IHTM44070. You can also get the election form IHT500 and its guidance notes IHT501 from the Probate and Inheritance Tax Helpline on telephone 0300 123 1072.