Income Tax and pre-owned assets

Am I liable to the Income Tax charge?

Answer the following questions to help you work out whether you are liable to pay the Income Tax charge. The charge applies to three types of property, land, chattels and intangible property. There are questions for each type of property. Answer the questions for each item of property in each category. The first question is common to all categories.

Question 1 - Are you resident in the United Kingdom for Income Tax purposes for the year of assessment 2009-10?

No: You are not liable to the Income Tax charge all the time you remain resident outside the UK for Income Tax purposes.

Yes: Now go on to question 2 in the section for land , chattels or intangible property depending on which type of property is involved.

Land

Land includes houses and buildings anywhere in the world. If you are domiciled outside the United Kingdom but are also resident here, the charge may only apply to land in the United Kingdom - see the detailed guidance for more information about this.

Question 2 - Do you occupy land? ('Occupy' means you live in the property or in some circumstances use it for storage or you occupy it from time to time. It does not include receiving rent from others who live there or use it for storage).

No: You are not liable to the Income Tax charge on pre-owned land.

Yes: Go on to question 3.

Question 3 - Do you own all of that land? ('Own' here includes owning it outright as freehold, leasehold or commonhold).

Yes: You are not liable to the Income Tax charge on pre-owned land. If you have a certain type of interest in the land under a trust or a tenancy agreement you may be subject to the charge depending on the particular circumstances.

No: Go on to question 4.

Question 4 - Did you own any part of the land you occupy after 17 March 1986 or contribute to the purchase of the land after 17 March 1986 eg through gifts of cash or other property which were subsequently sold to reinvest in the property you now occupy?

No: You are not liable to the Income Tax charge on pre-owned land provided you can also answer no to question 5.

Yes: You may be liable to Income Tax.

Question 5 - Have you since 17 March 1986 given another person some money or other assets the proceeds of which they have used to buy the land you now occupy?

No: You are not liable to the Income Tax charge on pre-owned land unless you answered yes to question 4.

Yes: You may be liable to pay Income Tax on the annual market rental value of the land. However, there are a number of other conditions and exclusions to the charge. You should read the detailed guidance to see whether you are liable and if so how to work out the Income Tax or how to elect instead to make the land liable to Inheritance Tax.

Chattels

Chattels has a wide definition but generally means personal possessions and includes items such as paintings, furniture, vehicles, boats, jewellery, musical instruments, wines and spirits and collectible items. It does not include cash.

Question 2 - Do you have possession or use of a chattel? ('Possession' and 'use' mean you must have actual physical possession or use of the item rather than just the right to possess or use it).

No: You are not liable to the Income Tax charge on a pre-owned chattel.

Yes: Go on to question 3.

Question 3 - Do you currently own all of that chattel?

Yes: You are not generally liable to the Income Tax charge on a pre-owned chattel.
If you have a certain type of interest in the chattel under a trust or a tenancy agreement you may be subject to the charge depending on the particular circumstances.
No: Go on to question 4.

Question 4 - Did you own the chattel or give away property to enable another person to buy the chattel, after 17 March 1986?

No: You are not liable to the Income Tax charge on a pre-owned chattel unless question 5 applies.

Yes: You may be liable to pay the Income Tax charge.

Question 5 - Have you since 17 March 1986 given another person some money or other assets the proceeds of which they have used to buy the chattel you now possess or use?

No: You are not liable to the Income Tax charge on a pre-owned chattel unless question 4 applies.

Yes: You may be liable to pay Income Tax on a prescribed percentage of the open market value of the chattel. However, there are a number of other conditions and exclusions to the charge. You should read the detailed guidance to see whether you are liable and if so how to work out the Income Tax or how to elect instead to make the chattel liable to Inheritance Tax.

Intangible property

Intangible property is anything which is not covered by the definitions for Land and Chattels. It will include cash, shares and securities and insurance or other policies but only applies to intangible property held in a settlement.

Question 2 - Have you made a settlement of (put into a trust) intangible property or have you added intangible property to an existing settlement at any time after 17 March 1986?

No: You are not liable to the Income Tax charge on pre-owned intangible property.

Yes: Go on to question 3.

Question 3 - Are you entitled to benefit in any way from the intangible property in the settlement? ('Benefit' here does not just mean that you receive all or some of the income that the intangible property actually produces. It also means that you are not specifically excluded from the possibility that you could receive capital or income even though the settlement may not actually generate any income).

No: You are not liable to the Income Tax charge on pre-owned intangible property.

Yes: You may be liable to pay Income Tax on a prescribed percentage of the open market value of the intangible property. However, there are a number of other conditions and exclusions to the charge. You should read the detailed guidance to see whether you are liable and if so how to work out the Income Tax or how to elect instead to make the intangible property liable to Inheritance Tax.