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HMRC internal manual

Inheritance Tax Manual

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HM Revenue & Customs
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Pre-owned assets: calculation of the charge on chattels: valuation date and the 5 year cycle

FA04/Sch15/Para 7(4) provides the authority for regulations to be made to specify that a valuation of the chattel may be by reference to an earlier valuation date. SI2006/724 The Charge To Income Tax By Reference To Enjoyment of Property Previously Owned Regulations contains provisions that describe the valuation date and define the periods to which a valuation will apply

  • the ‘first valuation date’ is the date on which the POA charge first applies to a chargeable person, SI 2006/724/Art 4(3), and
  • the ‘five year anniversary’ is the fifth anniversary of the 6 April in the year of assessment in which the POA charge first applied to a chargeable person; and subsequent anniversaries at 5 year intervals, SI 2006/724/Art 4(3).

Where the chargeable person had already disposed of the chattel and had possession and use of it as at 6 April 2005, the valuation of the relevant land for 2005/06 is undertaken at that date. In future years, the valuation of the chattel is ascertained by reference to the valuation either at the first valuation date or the last five year anniversary, SI 2006/724/Art 4(1). So the valuation obtained on 6 April 2005 will apply for each of the 5 tax years ending 5 April 2010.

The ‘chattel’ for the purposes of paragraph 7(4) is the chattel currently in the possession and use of the chargeable person. Therefore, where a valuation has been carried out in respect of a charge arising under Schedule 15, and within the 5-year cycle the chattel is sold and a smaller less valuable item is purchased for use by the chargeable person, then a new valuation will need to be carried out which will be used for the remainder of that 5-year cycle.

If there is no valuation date at a 5 year anniversary, the date on which the POA charge next applies is to be treated as the date on which, and being in the year of assessment in which the POA charge first applied SI 2006/724/Art 4(4).

So if there is an interruption in the person’s possession and use of the chattel and the year of a 5-year anniversary is not a taxable period, the year in which the provisions of FA04/Sch15 are applied again will be treated as the next 5-year anniversary.