IHT400 Notes : Guide to completing your Inheritance Tax account

Pre-owned assets
Earlier transfers
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IHT400 Notes
Guide to completing your Inheritance Tax account
Please note, the law says that where a gift with reservation becomes an
outright gift, you cannot deduct any of the exemptions from the value of
the gift.
If you need help or more information, please phone our helpline.
In some situations, where a person benefits from assets they owned
previously, a charge to Inheritance Tax may arise under the rules relating to
gifts with reservation.
An Income Tax charge on pre-owned assets (POA) was introduced in the
2005–06 tax year. This charge applies to assets that a person disposed of,
but continued to get benefit from. It can also apply when a person
contributed to the purchase of an asset for another person that they
subsequently benefitted from.
The legislation gives you the option to elect to have the asset treated as
part of your estate for Inheritance Tax purposes, under the reservation of
benefit rules. So long as the election remains in place, you will not have to
pay the Income Tax.
To make this election you must have submitted a form IHT500
Election for Inheritance Tax to apply to asset previously owned
before 31 January after the year in which you became liable to the
charge, or exceptionally, if you can show a reasonable excuse for failure
to submit the form by the deadline, at a later date. It is not possible for
an election to be made on the deceased’s behalf after death.
This part of the form is about any gifts made by the deceased (the donor)
in the period before the gifts shown on pages 2 to 4 of the form. To work
out whether tax is payable on any gift, the law says that we must add it to
any chargeable gifts made in the seven years before the gift concerned.
For example, if the deceased made a gift six years before they died, we will
add that gift to any chargeable gifts made in the seven years before the
gift was made.
A chargeable gift is any gift that is not wholly covered by exemptions and:
• was made before 18 March 1986, or
• was made between 18 March 1986 and 21 March 2006 and was given to
a company or the trustees of a discretionary trust
• was made on or after 22 March 2006 unless it was a gift
— to another individual
— to a disabled trust
— into a bereaved minor's trust on the coming to an end of an
immediate post-death interest.
Gifts from one individual to another are not chargeable gifts and should
not be included in this section of the form.
You should not include these earlier gifts with the estate on death because
they are only relevant in working out tax payable on gifts. We will take any
earlier gifts into account when looking at the gifts after you have taken out
the grant.