Pre-owned assets charge catches partners' policies
Tax experts have already expressed disappointment with aspects of the Inland Revenue's guidance, published last Friday, to the operation of the pre-owned assets charge effective from 6 April.
The Revenue's technical guidance on the operation of the new regime outlines the circumstances in which the charge to income tax arises and explains how to calculate the benefit subject to the charge or elect for inheritance tax to apply.
A form http://www.inlandrevenue.gov.uk/cto/iht500.pdf"
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Value of the policy
What is the value of the policy on which the 5% is assessed if for example a partner (in good health) has term assurance on his own life for the next 10 years until age 60 which would pay out £500,000? Is it £500,000 in which case there is a problem or is it £500,000 times the morbidity rate? Surely the value is nothing like the £500,000 as it is very unlikely that it will be paid out.
What sort of policy indeed?
If this type of arrangement is centered upon the purchase of a joint life policy, or similar arrangement then surely it will not acquire value until death occurs - hence the policy as an intangible may be within the new rules, but will not have a value, and 5% of nothing is always very little.
If the arrangement is based on acquiring an investment policy to save for the amount necessary to buy out the potentially deceased (?) partner then where is the difference between that and acquiring any investment which would be part of the partner's estate outside the policy wrapper but seems to avoid IHT by being within it - just the sort of situation the new charge is designed to catch.
And before there is a stream of angry postings I DO NOT agree that this new benefit-in-kind is any kind of good idea at all - it is clearly catching people it is not intended to catch and will simply expose many unsophisticated elderly taxpayers to liabilities that they will be blissfully unaware of until investigated and penalised by the revenue.
The problem is and always has been an Inheritance Tax which is nothing of the kind - it should tax the recipient of wealth according to the wealth they already possess, rather than the donor on wealth they may have worked long and hard to accumulate.