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HMRC internal manual

Inheritance Tax Manual

Pre-owned assets: exemptions: de minimis exemption

There is no POA charge where in any year of assessment, the aggregate of

  • the appropriate rental value, (IHTM44010),
  • the appropriate amount under FA04/Sch15/Para7(2), (IHTM44016) and
  • the chargeable amount determined under FA04/Sch15/Para9, (IHTM44025)

do not exceed £5,000. There are a number of points to note with this exemption

  • it is not an amount over which the excess is subject to the POA charge; if the aggregate sum mentioned above exceeds £5,000, the exemption is lost altogether,
  • it operates by reference to the appropriate rental value or amount determined under FA04/Sch15/Para7(2); not the amount on which the charge actually arises. So if the annual rental value is £8,000 and the donor pays £4,000 in rent so that the amount actually chargeable is £4,000, the exemption is lost as the annual rental value exceeds £5,000,
  • but as regards the intangibles charge, any allowance given for income tax or CGT paid does reduce the amount actually chargeable under FA04/Sch15/Para9,
  • if a person is only chargeable for part of the year, it only the appropriate portion of the annual rental (etc) that is tested against the de minimis limit,
  • if two people are equally chargeable to POA, each is entitled to a £5,000 limit so, for example, a married couple would not be liable if the annual rental value of the relevant property did not exceed £10,000,

whereas the position with land is fixed for 5 years (IHTM44011), the situation with chattels (IHTM44016) and intangibles (IHTM44025) will vary from year to year due to the change in the official rate (IHTM44016) and the need to value the intangible assets each year. It is therefore possible for a person to find themselves exempt from the POA charge one year by reason of the de minimis limit, but liable to the charge in the next because the official rate has increased for the tax year concerned.