IHTM44025 - Pre-owned assets: calculation of the charge on intangibles: introduction

Where a charge arises under FA04/Sch15/Para 8 in respect of the whole or part of a year of assessment, an amount equal to the 鈥榗hargeable amount鈥� is to be treated as income of the individual and subject to income tax, FA04/Sch15/Para 8(3).听

The chargeable amount is defined in FA04/Sch15/Para 9(1) as N minus T where听

  • N is the amount of the interest that would be payable for the taxable period if interest were payable at the prescribed rate on an amount equal to the value of the relevant property at the valuation date. The 鈥榩rescribed rate鈥� is the official rate of interest at the valuation date under ITEPA2004/S181,听

The prescribed rate was set at听

5% for 05/06 and 06/07,听

6.25% for 07/08 and 08/09,听

4.75% for 09/10, and听

4% for 10/11 & 11/12.听

Table 2 at鈥�contains听the up to date听list for the official rate. External customers can view this table at鈥�听

T is an allowance for the amount of听any Income Tax or Capital Gains Tax payable by the chargeable person in respect of the taxable period by virtue of any of the following provisions听

  • ITTOIA05/S461 & S624,听

  • ITA07/Ss720 - 730, and听

  • TCGA92/S77 (now repealed) or S86听

so far as听the tax is attributable to the relevant intangible property.听

Example听

Andrew is the UK resident and domiciled (pre-6 April 2025听changes to domicile听within the IHTA) settlor of a non-resident settlor interested settlement. The settled property does not form part of his estate听nor has he reserved a benefit in the settled property. The settlement comprises听'intangible鈥� property of cash and shares with a value of 拢1,500,000 at the valuation date.听

In the tax year 2005/06 the trustees receive income of 拢20,000 which is chargeable to income tax on Andrew under ITTOIA05/S624. A further 拢150,000 chargeable gains are realised which are deemed听to be Andrew鈥檚 gains by virtue of TCGA92/S86.听

This means that 拢8,000 in income tax is payable (拢20,000 脳40%) 拢60,000 in CGT is payable (拢150,000 脳 40%). The tax allowance (T) against the potential charge under FA04/Sch15/Para 8 is therefore 拢68,000.听

The chargeable amount (N) is 5% (the prescribed rate in 2005/06) 脳 拢1,500,000 = 拢75,000, so that the tax charge under FA04/Sch15/Para 8 is on 拢7,000.