Can I use an asset that I have given away to avoid Inheritance Tax?
So the simple answer is yes you can. The problem is that it will likely render the gift as irrelevant for Inheritance Tax purposes and mean that the asset is still part of your estate.
Let’s run through an example. A couple gave away a couple of rented flats 10 year ago, one to each of their adult children. They paid the capital gains tax due on the gift (remember you are deemed to feel for market value when you gift an asset away) and all was well. They are now looking to use one of the flats when they come to visit their family. The tenant is moving out and the couple will move their things in for their regular visits. They will keep their main residence down country.
Pre Owned Asset Rules
The rules are specifically designed to prevent someone from giving away an asset but continue to enjoy use or benefit. If I gave away a £1m painting to avoid IHT but keep it above my fireplace at home I am still enjoying the benefit of the waiting so it would still be in my estate. Same goes with the flat in our story today. If the couple simply use the asset then it would form part of their estate for IHT even though they gave it away 10 years ago.
How does it work?
Well the legislation imposes a Pre Owned Asset Charge if the value of the deemed benefit is worth more than £5,000 a year. This annual rent on this flat would be more than that of course. It an be avoided by ceasing to use the asset or by paying full market rent. Remember the rules aim to stop individuals from sidestepping IHT by giving assets away in name only. Take proper advice and fully document your actions to avoid unexpected tax bills.