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HMRC internal manual

Residence, Domicile and Remittance Basis Manual

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Remittance Basis: Identifying Remittances: Specific Topics: Joint Accounts

Where a remittance basis user has an offshore bank account held jointly with another person there may be additional difficulties in identifying the nature of the monies in the account, and any transfers of monies from the account. You will need to read these pages together with the rest of RDRM35200: Mixed Funds.

Earned Income

Employment income and pensions are not regarded as ‘joint property’ when received by the employee or pensioner - refer to the Independent Taxation Manual IN127+. So any foreign earnings or foreign pension income (taxed as relevant foreign income) RDRM31140 is attributable only to the employee or pensioner to whom they ‘belong’.

Income from jointly held property

ITA07/s836(2) provides that where a married couple or civil partners are living together and income arises from property held in their joint names, both individuals are treated for income tax purposes as beneficially entitled to one-half of the income regardless of their actual respective beneficial entitlements, unless they make a joint declaration that it shall be otherwise under ITA07/s837. Refer to the Independent Taxation Manual IN115+ for further details.

This general ‘equal division’ rule at ITA07/s836(2) does not apply in some cases (referred to in ITA07/s836 as ‘exceptions’).

These are:

  • Exception A - any income to which neither of the individuals is beneficially entitled
  • Exception B - where the spouses/civil partners make a joint election to HMRC under the terms of ITA07/s837 that one of them is beneficially entitled to the income to the exclusion of the other or they are both entitled to the income in unequal shares
  • Exception C - partnership income
  • Exception D - income from a UK property business
  • Exception E - distributions from close companies
  • Exception F - where one of the persons is beneficially entitled to the income but it is treated as being the income of someone else under any other provision of the Taxes Acts

Broadly then, unless the individuals have made a declaration otherwise, foreign income arising from jointly held property will be regarded as belonging to each individual in an equal (that is usually a 50:50) share.

Any interest arising on the jointly held offshore bank account will be split equally between the account holders.

Of course married couples or civil partners may also hold assets separately; and they can divide up joint assets so that they hold them separately for the future. In these circumstances each spouse or civil partner is then taxed on the income from the assets each holds in his or her own name, in the same way as for ‘earned income’.

Analysing the account

Where an individual has a ‘joint account’ with someone else and one or both of them chooses to be taxed on the remittance basis it is necessary to fully analyse the account (with due regard being given to the ‘exceptions’ identified above). You will need to do this in order to apply Step 1 ITA07/s809Q(3) (refer to RDRM35200: Mixed funds) which deals with transfers from mixed funds and requires you to find each of the categories of the remittance basis user’s income and gains in the mixed fund. A joint account will almost certainly be a mixed fund.

Analyse the account by putting each credit to the account into separate columns, divided between each individual, for each year.

Likewise with the debits; transfers out of the account that are clearly made by or for one or other of the individuals and intended to be made out of ‘their’ share of the income should be debited ‘under’ their column.

‘Joint’ expenses, for example items such mortgage payments where the debt is held jointly, or council tax bills and so on may, if appropriate, be split equally between each individual. Alternatively, such debits may be fully appropriated to just one of the account holders if that reflects the reality of their joint financial arrangements; for example it may be that only one partner is working and contributes most of the ‘credits’ to the account in the form of their income. In such circumstances it may be more appropriate to attribute all expenditure to that partner in so far as the overall balance of the account permits. When separating the account in this way it is important that the overall balance remains consistent.

In practice you should try to take the most pragmatic approach that best reflects the reality of both individuals’ situations.

Cases where only one account holder is a remittance basis user

Individuals who are not using the remittance basis are liable to tax on the arising basis, so they will, where appropriate, have paid UK tax in respect of their share of the income and gains that have been credited to the joint account in the tax year. Because UK tax has been (or will be) paid by that individual he or she may bring to the UK or otherwise use their share of the funds that are in the account in any way they wish without triggering an additional tax charge.

However, if at any time during the year they bring to the UK or otherwise use amounts in excess of their share of the funds in the joint account at that point in time then they will be regarded as using their partner’s income or gains instead.

Example:

An offshore bank account was opened on 20 June. It is held jointly by A and B, who are civil partners. A is a remittance basis user in this year. The account shows:

Date Credit Debit Balance Attributable to
         
20 June £2,000   £2,000 A - foreign earnings
27 June £1,000   £3,000 A - relevant foreign income
1 July   £800 £2,200 B - cash taken out in London
27 July £90   £2,900 B - UK rental income

In analysing the account you need to look at what was in the account immediately before each debit. In this case, the cash withdrawn by B in London on 1 July can only be attributed to A’s income credits and, as B is relevant person RDRM33030, A will be regarded as having remitted that £800. Also refer to RDRM35230 Remittances from mixed funds).

Remember that in most cases the account holders are likely to be relevant persons in relation to each other, so even transfers from the non-remittance basis using individual may be a taxable remittance on the other partner if it is regarded as consisting of or deriving from the other partner’s foreign income or gains.

Cases where both account holders are remittance basis users

You will still need to analyse the account in order to determine which transfers from the mixed fund are taxable remittances, and to determine which account holder is liable to pay any tax due. Again, you should try to take the most pragmatic approach that best reflects the reality of the situation.

Once the account has been split between the individual account holders, any taxable remittances (refer to RDRM33020 Meaning of remittance) of the foreign income or gains that are the property of the remittance basis user are subject to the normal ‘ordering’ rules that apply to remittances from a ‘mixed fund’.

The following example demonstrates the principles of analysing a joint account and then determining whether the ‘transfers’ are a taxable remittance from a mixed fund. You will also need to refer to RDRM35230 Remittances from mixed funds.