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HMRC internal manual

Inheritance Tax Manual

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

The contribution condition is met if the chargeable person, at any time after 17 March 1986, has provided, directly or indirectly, any of the consideration given by another person for the acquisition of an interest in

  • the chattel, FA04/Sch15/Para 6(3)(a), or
  • any other property the proceeds of the disposal of which were directly or indirectly applied by another person towards an acquisition of the chattel, FA04/Sch15/Para 6(3)(b).

As with the disposal condition (IHTM44005), if the provision of the consideration qualifies as an excluded transaction (IHTM44030), this condition will not apply.

The contribution condition applies not only where the contribution provided by the chargeable person is directly used to purchase the chattel but also where the contribution is indirect. If the chargeable person provided all or part of the consideration for the purchase of an asset by another person, who then sold that asset and used the proceeds to purchase the chattel used or enjoyed by the chargeable person, the contribution condition is satisfied.

Example

Trevor gives Paul the funds to buy a painting. Paul then sells the painting and buys a violin with the sale proceeds which Trevor then plays. The contribution condition is met.

You do not need to show that when the contribution was made, the individual intended to use or enjoy the chattel purchased by another; if the chargeable person uses or enjoys a chattel that they have, as a matter of fact, indirectly contributed to the purchase of, the contribution condition is met.

The contribution condition does not only apply to cash contributions. So in the example at IHTM44007, where Paul exchanges a painting for a violin, the gift of the painting from Trevor to Paul is a contribution to the acquisition of the chattel that Trevor subsequently used or enjoyed and so the contribution condition is met.

However, the contribution condition is not met where the chargeable person uses or enjoys a chattel purchased by another with money loaned by the chargeable person. This is because the outstanding debt will form part of the lender’s estate for Inheritance Tax purposes, and the lender cannot be said to have provided a contribution to the purchase of the chattel when that money has to be repaid to them, even if the loan was interest free. It follows that the ‘lender’, in such an arrangement, is not subject to a POA charge.