Any experience on making "Gifts made from Excess Income" paid from a joint account with one earner?

HandyAndy58

We have been lucky enough to have been able to make "gifts out of excess income" to help our daughter get ready to buy her first place.
Before starting these payments off we assessed our ongoing income requirements, ensured we were still saving sufficient for our retirements, prepared a lifetime expenditure forecast including end of life care funding and added some additional years of  expected expenditure over the likely age of our demise (taken from recognised sources). 
Having done the maths to show that we were well prepared for the future and did not need to increase our savings rates any further, we wrote to our daughter explaining what we were going to be providing money each week and set up direct debits to pay this from our joint account.
She is now preparing to buy her first house and the conveyancer has been given full details of my salary over the years of gifting, our full expenditure from all bank accounts so they can see salary coming in and the regular gifts going out. In addition, I've signed the conveyancers Source of Funds declaration stating that I (as the employed person have made all the payments, will have no ongoing financial interest in the property and won't live there after purchase).  The conveyancer is now asking my wife to complete a Source of Funds declaration too saying this has to be done as we have a joint bank account. My concern is that my wife is retired and not drawing a pension yet so she has no income.  This would mean that she has no excess income to gift. If HMRC were able to claim that half the money was attributable to "her" then would this trigger a liability for income tax for my daughter at her marginal rate on half of the gifted amount? 
I'm hoping that as there are no restrictions between spouses on the amount that can be transferred between them, and I can be seen to have been the source of her pension contributions, ISA deposits and GIA account deposits over the years that this potential tax charge on half the gifted amount wouldn't happen.  If anyone has direct experience of this, or has found a specialist advisor/lawyer that has helped them it would be great if they could share that information please and even the contact details of the advisor?
I haven't approached HMRC directly as that seems a bit like sticking my head in a tigers mouth and asking "Are you hungry"? lol....

silvercar

You are confusing a few issues. Firstly, there is no restriction on making gifts. Your daughter would never be charged income tax on a gift, even if it came from savings.

The only issue with a gift is that, if the donor was to die within 7 years, it could be considered as part of the donor’s estate and subject to IHT. This would be reduced by taper relief if the gift was made a few years ago but less than 7. There is also the question of deprivation of assets if you needed the state to cover care costs and had given money away to avoid having to pay but (a) by the sound of it you don’t have care costs at the moment and (b) you seem to have covered that base.

The last thing is that hrmc considers the funds in joint accounts to have come from the person that put the money in the account. So if you are the one that fed the account then hmrc would consider it your money. The fact that a conveyancer wants you both to jump through some hoops to satisfy their own requirements is irrelevant.

tacpot12

HandyAndy58 said:

...
I haven't approached HMRC directly as that seems a bit like sticking my head in a tigers mouth and asking "Are you hungry"? lol....

I like that! 

As per silvercar's comment, there is no possible impact on your daugher's Income Tax. 

By gifting regular amounts out of excess income, and having evidence that the income is in excess of your needs, you should not incur any Inheritance Tax on these gifts. 

 That the payments have been made from a joint account does cloud the water somewhat. However, I think silvercar's advice is correct. The fact that everyone in the UK pays tax on an individual basis, and not a couple, supports the notion that your income is your income, and does not become your wife's income just because it is paid into a joint account. The interest paid to the joint account is split 50/50 when doing self-assessment for income tax, because it was earned jointly.

HandyAndy58

silvercar said:

You are confusing a few issues. Firstly, there is no restriction on making gifts. Your daughter would never be charged income tax on a gift, even if it came from savings.

The only issue with a gift is that, if the donor was to die within 7 years, it could be considered as part of the donor’s estate and subject to IHT. This would be reduced by taper relief if the gift was made a few years ago but less than 7. There is also the question of deprivation of assets if you needed the state to cover care costs and had given money away to avoid having to pay but (a) by the sound of it you don’t have care costs at the moment and (b) you seem to have covered that base.

The last thing is that hrmc considers the funds in joint accounts to have come from the person that put the money in the account. So if you are the one that fed the account then hmrc would consider it your money. The fact that a conveyancer wants you both to jump through some hoops to satisfy their own requirements is irrelevant.

Thanks Silvercar,
Gifts from excess income circumvent the 7 year  taper.
I've ensured there's no deprivation of assets by calculating our total needs and adding a shed load of additional margin.
Great to hear your understanding of the source of funds impact in a joint account as this is my concern.

HandyAndy58

tacpot12 said:

HandyAndy58 said:

...
I haven't approached HMRC directly as that seems a bit like sticking my head in a tigers mouth and asking "Are you hungry"? lol....

I like that! 

As per silvercar's comment, there is no possible impact on your daugher's Income Tax. 

By gifting regular amounts out of excess income, and having evidence that the income is in excess of your needs, you should not incur any Inheritance Tax on these gifts. 

 That the payments have been made from a joint account does cloud the water somewhat. However, I think silvercar's advice is correct. The fact that everyone in the UK pays tax on an individual basis, and not a couple, supports the notion that your income is your income, and does not become your wife's income just because it is paid into a joint account. The interest paid to the joint account is split 50/50 when doing self-assessment for income tax, because it was earned jointly.

Thanks Tacpot.....
We've generated a solid record of funds transfers and the sources of funds together with the intent of the gifts and their repeating nature. Some  weekly, others quarterly and more annually. Also lodged these records with our executor in case of query post mortem. Hoping we've got everything covered as the downside could be difficult otherwise 

mybestattempt

@HandyAndy58

I agree with the other posters that the monetary gifts to your daughter would not give rise any income tax charge on your daughter whether they were from you, your wife or joint gifts from you and your wife.

Nor should there be any IHT issues if the gifts are from excess income.

I can, however, see why the joint account is an issue for the conveyancer, about who has actually funded the gifts and why he wants a statement from your wife.

This is because where a married couple have a joint bank account they are treated by HMRC as having 50/50 legal and beneficial ownership of the money in the account unless they make a declaration that their beneficial ownership is held in unequal shares.

Which that means although you have been the sole contributor to the joint account your wife (absent a declaration otherwise) has beneficial ownership of half the money in that account at any time.

So, although you may see yourself alone as making the gifts to your daughter because they come from a joint account they are effectively joint (50/50) gifts.

HandyAndy58

mybestattempt said:

@HandyAndy58

I agree with the other posters that the monetary gifts to your daughter would not give rise any income tax charge on your daughter whether they were from you, your wife or joint gifts from you and your wife.

Nor should there be any IHT issues if the gifts are from excess income.

I can, however, see why the joint account is an issue for the conveyancer, about who has actually funded the gifts and why he wants a statement from your wife.

This is because where a married couple have a joint bank account they are treated by HMRC as having 50/50 legal and beneficial ownership of the money in the account unless they make a declaration that their beneficial ownership is held in unequal shares.

Which that means although you have been the sole contributor to the joint account your wife (absent a declaration otherwise) has beneficial ownership of half the money in that account at any time.

So, although you may see yourself alone as making the gifts to your daughter because they come from a joint account they are effectively joint (50/50) gifts.

Thanks Mybestattempt,  

I've just been reading up on joint accounts and have learnt a few new things today already! 
They're not as simple as I'd thought!

mybestattempt

@[Deleted User]


Do you mean the Whitlock & Anor v Moree (Bahamas) Privy Council case?  

Could you point me to or give me link to where HMRC set out that view about joint accounts for IHT purposes please?

DRS1

I am not sure what the problem is.  Why can't the wife fill in the form saying she has not contributed anything to the joint account, that she is not the source of funds for the daughter and that her only source of wealth is her husband?  OK it makes it sound like the Victorian age but if it is true what is the problem?  Presumably the "gifts from excess income" paperwork supports the position that all the gifts and all the income are the husband's not the wife's?

mybestattempt

[Deleted User] said:

mybestattempt said:

@[Deleted User]


Do you mean the Whitlock & Anor v Moree (Bahamas) Privy Council case?  

Could you point me to or give me link to where HMRC set out that view about joint accounts for IHT purposes please?

Yes, that's the case. Here's the link to HMRC's view: https://www.gov.uk/hmrc-internal-manuals/inheritance-tax-manual/ihtm15042

Thank you, that's helped clarify my thoughts.

Whitlock confirms my understanding of joint tenancy, legal and beneficial ownership and inheritance by survivorship for joint bank accounts. 

The guidance at IHT 15042 does say that the question of unequal contributions to a joint account need not be raised if the deceased's interest in the account passes to an exempt beneficiary such a spouse or civil partner.

There's further guidance in the Inheritance Tax Manual about joint tenancy and beneficial ownership for joint bank accounts:

https://www.gov.uk/hmrc-internal-manuals/inheritance-tax-manual/ihtm15082