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HMRC internal manual

Inheritance Tax Manual

Pre-owned assets: property in charge: the disposal condition - chattels

The disposal condition is met if the chargeable person, at any time after 17 March 1986, owned

  • the chattel, FA04/Sch15/Para 6(2)(a)(i), or
  • other property which was disposed of and the proceeds were directly or indirectly applied by another person towards the acquisition of the chattel, FA04/Sch15/Para 6(2)(a)(ii), and

then disposed of all or part of their interest in the chattel, otherwise than by an excluded transaction (IHTM44030), FA04/Sch15/Para 6(2)(b).

FA04/Sch15/Para 6(2)(a)(i) combined with FA04/Sch15/Para 6(2)(b) covers situations where the individual previously owned and disposed of the chattel, but continued to use or enjoy it.

FA04/Sch15/Para 6(2)(a)(ii) combined with FA04/Sch15/Para 6(2)(b) covers situations where the chattel concerned was acquired by someone else using the proceeds from a disposal of property previously owned by the individual, who then uses or enjoys the chattel concerned.

Example

Trevor gives a painting to Paul. Paul then sells the painting and buys a violin with the proceeds, which Trevor then plays. The disposal condition is met.

So the disposal condition will apply to the chargeable person’s enjoyment or use of a chattel even if it was never actually owned by them. If they give away another asset (it does not have to be another chattel, but see the contribution condition (IHTM44008) if the gift is of cash) to another person who sells the asset and uses the proceeds to purchase the chattel concerned, the disposal condition is satisfied, unless it qualifies as an excluded transaction.

A disposition that creates a new interest in a chattel out of an existing interest is taken to be a disposal of part of the existing interest, FA04/Sch15/Para 6(4).

The disposal condition will be met whether the sale or gift is of the whole or part of the chattel and whether or not the sale is at less than the market price. See IHTM44031 where the disposal is of the whole of the chattel for full consideration.

FA04/Sch15/Para 6(2)(a)(ii) applies where the proceeds of sale are used to acquire a chattel that is subsequently used or enjoyed by the chargeable person. So, in the example above, if Paul exchanged the painting for the violin, on the face of it, the disposal condition is not met; but see IHTM44008.