Pre-Owned Assets Tax (POAT) Explained (2026/27)
What the Pre-Owned Assets Tax is, why it exists to catch IHT gifting schemes where the giver keeps using the asset, and how it differs from the gift-with-reservation-of-benefit rules.
Why POAT Exists
Before 2005, some estate-planning arrangements were designed to remove an asset β usually the family home β from someone's estate for Inheritance Tax purposes while letting them carry on living there, in a way that was structured to avoid triggering the gift-with-reservation-of-benefit rules. HMRC introduced the Pre-Owned Assets Tax specifically to close that gap, by charging annual Income Tax on the ongoing benefit instead.
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POAT applies where someone:
- No longer owns an asset (having sold, given away or funded its purchase through a scheme), and
- Continues to get a benefit from it β most commonly living in a former home β in a way that falls outside the gift-with-reservation rules.
Where it applies, an annual Income Tax charge is calculated based on the value of the benefit received (for a home, broadly a notional rental value), rather than the asset being taxed under Inheritance Tax rules.
The Election Out
Anyone caught by POAT can generally elect for the asset to instead be treated as still forming part of their estate for Inheritance Tax β swapping an annual Income Tax charge for a future IHT liability on death instead. Which is preferable depends heavily on individual circumstances, including age, health, the asset's value and how it might grow.
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Frequently asked questions
What is the Pre-Owned Assets Tax (POAT)?
POAT is an annual Income Tax charge, introduced in 2005, on the benefit someone gets from continuing to use or benefit from an asset β typically a home β that they used to own but gave away, in arrangements that fall outside the ordinary gift-with-reservation-of-benefit IHT rules.
How is POAT different from gift-with-reservation-of-benefit?
Gift-with-reservation-of-benefit pulls a gifted asset back into the donor's estate for Inheritance Tax if they still benefit from it. POAT is a separate annual Income Tax charge designed to catch schemes that were structured specifically to avoid the gift-with-reservation rules β the two regimes were deliberately designed not to overlap for the same arrangement.
Who typically gets caught by POAT?
People who used certain estate-planning arrangements from the 1990s and early 2000s β for example, selling a home to family at full value and then renting it back below market rent, or using certain trust structures β where the aim was to remove the asset from their estate for IHT while still living in or benefiting from it.
Can someone elect out of POAT?
Yes, an election can generally be made to bring the asset back into the donor's estate for Inheritance Tax purposes instead of paying the annual POAT charge β effectively choosing which regime applies. This is a decision that needs professional advice given how the two outcomes differ.
Is POAT relevant to ordinary gifts, like giving money to children?
No. Straightforward gifts where the giver keeps no benefit β such as simply giving away cash or a property with no strings attached β are outside POAT. It is aimed specifically at historic and structured arrangements where the giver kept using or benefiting from what was given away.
Does POAT still catch new arrangements today?
It can, in principle, apply to any arrangement matching its conditions, but most POAT cases in practice trace back to older estate-planning schemes from before HMRC closed the specific loopholes it targets. Anyone with an older 'give away and rent back' type arrangement should check their position.
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