Glossary · UK
What is Pre-Owned Asset Tax (POAT)?
POAT is an annual income tax charge on the benefit of continuing to enjoy an asset you have given away to dodge inheritance tax.
Full Definition
Pre-Owned Asset Tax (POAT) is an anti-avoidance income tax charge introduced in 2005 to counter schemes that escape inheritance tax (IHT) while letting you keep using the asset. It bites where you previously owned an asset (or provided funds to buy one), gave it away or sold it at undervalue, yet still benefit from it — typically by living in a former home or using chattels you "sold" to family. POAT taxes the deemed annual benefit: for land, the open-market rental value; for chattels and intangibles, a notional return based on HMRC's prescribed interest rate applied to the asset's capital value. That benefit is added to your income and taxed at your marginal rate (20%, 40% or 45%; Scottish taxpayers use Scottish bands up to 48%). A de minimis exemption applies — if the total annual benefit is £5,000 or less, no charge arises. POAT does not apply where the gift is already caught by the IHT "gift with reservation of benefit" rules, or where you pay a full market rent. You may elect (by 31 January after the relevant tax year) to have the asset treated as part of your estate for IHT instead, avoiding the annual income charge. POAT applies UK-wide; only the Scottish income tax rates differ.