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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: where the chattels are disposed of

Example

Hermione gives away a sculpture subject to a lease over it in her favour. The POA charge first applies to Hermione on 6 April 2005 when open market value of the sculpture is £600,000 and the value subject the lease is £400,000. The official rate is 5%, so the value for N is £30,000. The appropriate amount is therefore

30,000 × (400,000 ÷ 600,000) = £20,000.

This will be the amount subject to the POA charge for Hermione in tax year 2005/06. The values for the sculpture will remain the same for the next four tax years, although the amount subject to the POA charge will vary in line with changes to the official rate; so for tax year 2009/10, the POA charge will be £19,000. The valuation process will need to be repeated again on 6 April 2010 to establish the capital values to use for the next five tax years.

If Hermione had been paying a rent of £5,000 for the use of the sculpture, the amount subject to the POA charge would be reduced for 2005/06 to £15,000.

Example

Robert gives his son £250,000 in March 2005 which he spends on some antique furniture. Robert moves house on 6 October 2007, and the antiques are moved to his new accommodation at the same time. Robert will be subject to the POA charge from 6 October. As this date is the first day of the taxable period, it is this date that is the valuation date and the prevailing official rate will be used to work out the appropriate fraction of the POA charge that will be liable to tax in 2008/09. The official rate at 6 April in the subsequent years will be applied to the value of the antiques at 6 October to give the appropriate amount for the next four tax years.

The next valuation date will therefore be 6 April 2012.

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Example

Jessica is first liable to a POA charge on 6 April 2005. The necessary valuation is obtained and the POA charge is paid. She becomes non-UK resident for six years from 6 April 2006 to 6 April 2012. The POA charge does not apply during this period (IHTM44053). Normally, the five year anniversary would be on 6 April 2010; but because no POA charge arises is it not a ‘valuation date’. Jessica returns to the UK on 15 June 2012. A new valuation is then required and the prevailing official rate will apply to establish the appropriate amount for year 2012/13. The official rate at 6 April in the subsequent tax years will be applied to the value of the chattels at 15 June to give the appropriate amount for the next four tax years. The next valuation date will be 6 April 2017.

Had Jessica becomes resident again on 10 October 2008 and assumed possession and use of the chattels, the appropriate amount for 2008/09 would have been based on the value of the chattels at 6 April 2005, applying the official rate as at 10 October 2008; reduced to reflect Jessica’s residence in that year. The appropriate amount for 2009/10 is calculated in the normal way and the next valuation date would be 6 April 2010.