POAT was introduced to find a way of taxing those who have managed to circumvent the IHT gift with reservation of benefit rules. If HM Revenue & Customs cannot tax you in one way, it will find another.
That is how taxes work. If there appears to be a legitimate reason to tax something, HMRC will — particularly with the public finance black hole we keep hearing about. But how do you collect a tax that is hideously more intricate and complicated than this simple example when nobody seems to know about it?
POAT operates to treat occupation of the property as a benefit for which, subject to a de minimis disregarded benefit, any rental value seemingly higher than the threshold triggers an income tax charge on the elderly occupier at their marginal rate.
And how do you know what the benefit is? Inevitably, only after the additional expense of a chartered surveyor's report to assess the rental value on an open market basis with a periodic review.
Ask several people about the fairness of different forms of taxation and you will get several different opinions, very often influenced by their financial security and political views. However, how fair is a tax (not just POAT) that only traps those with a love of tax books, the Financial Times, or have the benefit of professional advice?
This is very much the case with POAT in that you must spot the circumstances that trigger it, and this tax — let alone many other forms of taxation — is so complicated, how can you report to HMRC in self-assessment to pay tax on something you did not even realise exists, let alone understand?
Taxes need to be simplified
If you do not spot it during your lifetime, the last chance saloon for HMRC to recover the tax is from your executors when they complete an IHT account. There is a whole section on it in the lifetime gifts schedule.
Most executors would not know or enquire about the history of funding for a property, and with the rise of online DIY probate applications, most lay executors would not think POAT applies, let alone make extensive enough enquiries to realise it may be an issue.
If the government introduces such taxes, there must surely be a better way to monitor and collect these taxes.
At present, unfairness is created as those who seek professional advice may become aware of and declare the position, whereas those who have no knowledge of the area and manage their own affairs without professional input are likely get away with it — not necessarily deliberately but simply because they do not know about the tax, let alone understand it.
