UNMARRIED couples who have bought a home together could face an income tax charge on the property.

They could be unwittingly caught in a tax net originally aimed at people trying to minimise their Inheritance Tax liability, warn accountants Baker Tilly.

The problem stems from the government move to tax 'pre-owned assets', introduced in this year's Finance Act.

It was supposedly aimed at elderly people who give away their houses to their relatives in order to minimise their Inheritance Tax liabilities but continue to live in them.

And now the legislation could now catch thousands of unmarried couples, warns Baker Tilly's Dianne Simpson-Price.

"Statistics show that more and more unmarried couples are living together, with a significant proportion buying property together.

"The problem comes when one partner gives the other a sum of money towards the cost of the house, but remains living in the house.

"That money is a gift that is being enjoyed - therefore an income tax charge is payable. "What's particularly concerning is that the legislation applies to gifts as far back as 1986," added Ms Simpson-Price.

"The very fact that there is a charge on unmarried people who in no way were trying to avoid tax is iniquitous."

Gifts between married couples are exempt from this legislation.

HYPOTHETICAL CASE STUDY

Mr Smith and Miss Jones decide in 1993 that they will live together.

Mr Smith gives Miss Jones £40,000 which she uses for the deposit on their £100,000 house, which is now worth £400,000.

They marry in 2000, but Mr Smith will still be liable for an income tax charge.

This charge will be based on the rental value of the house (say 8.0 per cent), so in this case could be £6,400 - based on a 40 per cent tax rate, levied on 8.0 per cent of a £200,000 half share of the £400,000 property.

First published: October 29