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Pre-owned assets: Late elections

Legislation will be introduced to enable HMRC to accept late elections for the income tax charge under the pre-owned asset regime not to apply and the inheritance tax gift with reservation regime to apply instead.

It was not generally realised until December 2006 that an anti-avoidance measure introduced in Finance Act 2006 would also apply to some situations which did not involve the avoidance of tax. The situations mainly involve non domiciled individuals who have set up offshore trusts where they are entitled to the income. Such individuals would be subject to the pre-owned assets income charge from 6 December 2005, but would be unaffected if they made an election.

As the deadline for making an election was 31 January 2007, many taxpayers affected would have been unaware of the need to make an election before the deadline, although today’s announcement does not actually make clear what the new extended deadline would be.

Although the amendment is likely to be intended to deal with these cases, it will allow late elections in other circumstances.