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HMRC internal manual

Inheritance Tax Manual

From
HM Revenue & Customs
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Pre-owned assets: calculation of the charge on chattels: introduction

For any taxable period, the chargeable amount in relation to any chattel is the appropriate amount, less the amount of any payments which the chargeable person makes during the period which they are legally obliged to make to the owner of the chattel for the possession or use of the chattel, FA04/Sch15/Para 7(1).

The appropriate amount is defined in FA04/Sch15/Para 7(2) as N × (DV ÷ V) where

  • N is the amount of interest that would be payable for the taxable period if interest were payable at the prescribed rate on an amount equal to the value of the chattel at the valuation date, and
  • DV is

    • where the chargeable person owned an interest in the chattel (IHTM44007), the value as at the valuation date of the interest in the chattel that was disposed of by the chargeable person (IHTM44018), or where the disposal was a non-exempt sale (IHTM44021), the ‘appropriate portion’ of that value, FA04/Sch15/Para 7(2)(a),
    • where the chargeable person owned an interest in other property, the proceeds of which were used to acquire an interest in the chattel, (IHTM44007) such part of the value of the relevant chattel at the valuation date as can reasonably be attributed to the property originally disposed of by the chargeable person (IHTM44019) or, where the original disposal was a non-exempt sale (IHTM44021), to the appropriate portion of that property, FA04/Sch15/Para 7(2)(b), or
    • if the contribution condition applies, such part of the value of the chattel at the valuation date as can reasonably be attributed to the consideration provided by the chargeable person (IHTM44020), FA04/Sch15/Para 7(2)(c). Note that the rules about non-exempt sales do not apply where the contribution condition is met.
  • V is the value of the chattel at the valuation date.

These provisions contain a number of terms that are either defined in the legislation or require explanation

  • the ‘taxable period’ means the year of assessment, or part of a year of assessment, during which the POA charge on the chattel applies to the chargeable person, FA04/Sch15/Para 7(5). If possession and use of the chattel is only for part of the year the chargeable amount is reduced appropriately,
  • the ‘prescribed rate’ is the official rate of interest at the valuation date under ITEPA2004/S181,
  • the ‘valuation date’ in relation to a taxable period is 6 April in the relevant year of assessment, of if later, the first day of the taxable period when the POA charge applies (IHTM44017).

The prescribed rate was set at

  • 5% for 05/06 and 06/07,
  • 6.25% for 07/08 and 08/09,
  • 4.75% for 09/10, and
  • 4% for 10/11 & 11/12.

Table 2 at HM Revenue & Customs: Rates and allowances - interest rates contains the up to date list for the official rate. External customers can find this table at http://www.hmrc.gov.uk/rates/interest-beneficial.htm.

Unlike the charge on land (IHTM44010) and although the valuation of the chattels remains good for 5 years, the amount subject to the POA charge each year will vary as the interest rate changes.

Note that if the official rate changes during the year, it will have no effect as it is always the official rate at 6 April that is used. The only exception will be where the POA charge arises during the year, when it will be official rate at the time the charge arises that will apply, reverting to 6 April for future years.