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HMRC internal manual

Inheritance Tax Manual

From
HM Revenue & Customs
Updated
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Pre-owned assets: election into Inheritance Tax: introduction

A person otherwise subject to the POA charge who is not beneficially entitled to an interest in possession in the property may avoid the charge by electing that any relevant property should instead be treated as subject to a reservation for Inheritance Tax purposes.

A person otherwise subject to the POA charge who is beneficially entitled to an interest in possession in the property may avoid the charge by electing that IHTA1984/S53(3) & (4) and 54 (IHTM44050) are not to apply to the property.

If such an election is made, the POA charge does not apply to the relevant property.

Once the election is made, if the occupation of land, or use of a chattel, ceases permanently, or the intangibles cease to be comprised in the settlement, the chargeable person will be treated as making a deemed PET at that time and should they survive 7 years beyond that time, the PET will not cumulate with their estate on death.

The other provisions that prevent a reservation of benefit from applying also apply when such an election is made; so if full consideration is paid, again there will be no reservation of benefit. If the person was already paying full consideration at the time the election is made, it is unlikely a reservation of benefit existed in the first place, so although an election has been made, you can accept that there is no deemed PET.

The normal rules for a reservation of benefit will apply, and it is important that the chargeable person is excluded from benefit throughout the 7 years prior to death; so if they cease to pay full consideration and remain in occupation of the property, a charge will arise under FA86/S102(3) on their death.

The election applies to each person individually, so in the case of a married couple or civil partners, both must elect if they both wish to avoid the POA charge and have the property treated as subject to a reservation.