As you give, so shall you now be made to pay

Many taxpayers face new accountancy and tax bills for thousands of pounds from 6 April. Yet the Inland Revenue has still not published details of how a new Inheritance Tax anti-avoidance law will work.

The Pre-Owned Assets (POA) legislation, introduced through last year's Finance Bill, is meant to target very wealthy people who reduce inheritance tax (IHT) by artificially giving away assets such as family homes and holiday cottages which they continue to use. As the Revenue put it last year, the people intended to be affected are those 'who have entered into contrived arrangements to dispose of valuable assets, while retaining the ability to use them'.

But the law will potentially drag in people with no IHT liability as well as many others who, while on course for IHT, have very low incomes and struggle to pay for tax advice.

It looks as if the Revenue will publish regulations and guidance in the next fortnight, leaving perhaps three weeks before the POA regime starts. This leaves professional advisers in a very difficult position. 'There seems to be quite a bit of confusion,' says independent financial adviser Phil Jacobs of RJR Financial Services in Ilkley, Yorkshire.

Any transactions ('transfers' of assets still used by the original owner) that took place on or after 18 March 1986 - when IHT was introduced - will be affected. Anyone caught by the new laws has two options. They can unwind the transfer of their property and take it back into their estate so that it is potentially chargeable to IHT when they die, or they can start paying income tax on the benefit from 6 April.

If someone decides to pay income tax, the first payment is due on 31 January 2007 for the 2005/06 financial year. The charge is levied at the individual's top rate of tax on the benefit they get. So on a home, the tax charge will be levied on the market rental value. A £500,000 house, for example, could be deemed to have an annual rental value of 5 per cent -£25,000. So a 40 per cent taxpayer would pay £10,000 in income tax a year.

There is a potential exemption here - although it would not affect the example cited above. There will be no liability if the annual benefit per individual is £5,000 or less (although the full income tax bill is chargeable if the income exceeds that level by just £1).

Whether people opt for the income tax charge will depend on various issues. Some will simply not be able to pay the extra income tax so will have to take the property back into their estates. Even so, this is not a cost-free option.

Matt Pitcher, of financial adviser Towry Law, says: 'Most clients are going to opt to go under the IHT regime, but a lot of these transactions are hard to unwind, and there could be legal costs and, possibly, Stamp Duty.'

Those who can afford to pay extra income tax charges will need to calculate the potential cost of each route. Put bluntly, older people are more likely to favour paying income tax as they have a shorter life expectancy and so a shorter exposure to income tax.

Either way, the latest a decision can be made is 31 January 2007 - the same day as the first income tax payment would be due.

All sorts of questions remain unanswered. The Revenue has to outline basic issues about how assets and the benefits arising from them are valued.

It has said that sales of properties to commercial companies under equity release deals will be exempted - but the issue is not clear about sales to family members.