One of the lessons we could all
learn from the POT experience is that, even once decisions about the future have been made, it is still a good idea to make periodic reviews in case some fine-tuning is needed. The largest group to be trapped by
this latest tax avoidance measure comprises those who have created trusts into which to sell their homes, while continuing to live in them. POT will not affect gifts between
spouses, or where there is only incidental use of the asset. This means, for instance, that a husband who has transferred the ownership of the home to his wife and continues to
live in it will not be forced to pay income tax.
The Government argues that POT is not a retrospective tax because it will not take effect until April 5 next year. On the
other hand, there is no getting away from the fact that it does relate to past actions: some of these trusts were set up as long ago as 1986, when the prospect of applying
income tax to them in the way currently envisaged was not even on the radar. Be that as it may, for those faced with the POT
predicament there are now four alternatives:
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Try to dismantle the trust. But be warned: this is often impossible.
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Keep the trust in place and pay the income tax. Assuming the property is worth £200,000 and has a market rental value of 5 per
cent a year, then the annual value of the "benefit" would be £10,000 and the income tax at base rate would be £2,200 a year.
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Elect to pay the full market rent.
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Tell the Inland Revenue to allow the assets to remain as part of the estate for inheritance tax purposes. For people who expect
to be living in a property for more than 20 years, this may be cheaper in the long run than paying annual income tax.
Obviously, a person's life
expectancy is going to be an important factor. The ninety year-old in ill-health is going to view the situation differently from the hale-and-hearty man or woman in their
sixties. But coping
with POT is not going to be easy. Tax planning remains important. If you have a wish list, you have to make it happen. The guest columnist in this issue is Wills, Probate
and Trust Solicitor Sarah Jordan. She can be contacted by telephone on 0115 947 0641 or
e-mail Sarah. Andersons Solicitors,
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