CheckLists.Tax (beta)
C1. Gifts in general
GENERAL
Meaning of gift
- Requires intention to give and acting on that intention
- “The making of a gift is the act of the donor. It involves the donor in forming the intention to give and then acting on that intention by doing whatever it is necessary for him to do to transfer the relevant property to the donee.” (R v. Hinks; Pride, §108).
- No intentional undervalue where transfer of partnership capital share is commensurate with donee's contribution to partnership (IHTM14315).
- Evidence (preferably contemporaneous) must show that transaction was 'economic' to avoid gift (Pride §112 - 113).
Legislation:
Cases:
Pride v. HMRC [2023] UKFTT 316 (TC);
HMRC manuals:
Commentary:
See also:
- Sale at undervalue
- Purchase at undervalue involves an element of gift (Garnett, §91).
- Query to what extent the undervalue must be conscious/intentional.
- HMRC regard this as a gift of the proportion of the property reflecting the undervalue (IHTM14316).
- Query the position if the purchase price is left outstanding/paid in instalments.
- If an income producing asset is sold for an annuity equal to the income produced by the asset, HMRC say this not a sale at undervalue, but a gift of the asset and the reservation of a benefit in the shape of the annuity (IHTM14316).
Legislation:
Cases: Garnett v. Jones [2007] UKHL 35;
HMRC manuals: IHTM14316;
Commentary: McCutcheon 7-54;
See also:
- Query whether a transaction for market value that reduces the transferor's estate is a gift
- T may sell property for market value, but the effect may be to reduce the value of T's estate by more than the value of the item sold, e.g. assets that are worth more together.
Legislation:
Cases:
HMRC manuals:
Commentary: McCutcheon 7-49;
See also:
- Sale to company in return for shares in company (query whether shares worth less)
- Minority interest in company owning listed shares is worth less than outright ownership of the equivalent number of shares (Battle).
- Even sale in return for 98% was thought to carry a 2.5% discount (Battle at 93).
Legislation:
Cases: Battle v. IRC [1980] STC 86;
HMRC manuals:
Commentary:
See also:
Effectiveness of gift
- Intention to make gift + delivery
- See Scott v. HMRC [2015] UKFTT 266 (TC) - gift of paintings by removing from wall, handing over and then putting back on wall.
Legislation:
Cases:
HMRC manuals:
Commentary: McCutcheon 7-49;
See also:
- Perfecting an imperfect gift
Gift or trust
- In Shah a statement that the person was "holding" the shares for another was a declaration of trust, not an incomplete gift.
Donor done all they can
- "[40] In broad terms, what the two Rose cases decided was that once the legal owner of shares hands to his donee a properly completed share transfer form relating to such shares and the relative share certificate, he will thereby have done all within his own power to transfer the shares to the donee. The donee will only become their legal owner upon being later registered as a member, a matter commonly outside the donor's control; and until such registration, the donor will remain the legal owner. But once the donor has done all in his own power to transfer the shares, he will be regarded as holding the legal title to them upon trust for the donee, who will thereupon become their beneficial owner." (Zeital).
- Satisfied in Pennington where donor's share certificates were held by company.
- Not satisfied in Zeital where donee needed share certificate, but that was lost + only donor could get a duplicate.
Legislation:
Cases:
Pennington v. Waine [2002] EWCA Civ 227;
Zeital v. Kaye [2010] EWCA Civ 159;
Shah v. Shah [2010] EWCA Civ 1408;
HMRC manuals:
Commentary:
See also:
Time and place of gift
- Cheque
Time
- Gift by cheque not completed until the cheque has been honoured because it can be cancelled (Re Owen, Parkside Leasing).
- "The proper interpretation of the facts is that until the donees had received their cheques and paid them into their own banking accounts, and the cheques were cleared and the money came into the donees' banking accounts, no property was transferred at all, nor was any effectual gift achieved." (Re Owen)
- "The receipt of a cheque does not of itself place the sum for which the cheque is made out or the proceeds of the cheque at the payee's disposal. It is not certain that the cheque will be honoured. It may be cancelled by the drawer before it is presented. It may be dishonoured by the bank on which it is drawn. The drawer may die before the cheque can be presented. The bank may fail before the cheque can be presented." (Parkside Leasing).
- Cheque that did not clear until after death meant the funds were in T's estate at time of death (Curnock).
Place
- The situs of the property gifted will depend on the bank account which the cheque is drawn on/leads to a reduction in.
Legislation:
Cases:
Re Owen [1949] 1 All ER 901;
Parkside Leasing v. Smith [1985] 1 WLR 310;
Curnock v. IRC [2003] STC (SCD) 283;
HMRC manuals:
Commentary: McCutcheon §2-14;
See also:
Identity of donor
- Consenting to transfer of subscriber share to wife was a gift by husband
- See Garnett at §28.
Legislation:
Cases: Garnett v. Jones [2007] UKHL 35;
HMRC manuals:
Commentary:
See also:
CAPITAL GAINS TAX
- Deemed market value consideration
XX
Legislation:
Cases:
HMRC manuals:
Commentary:
See also:
- Gifts forming part of series of linked transactions
XX
Legislation: TCGA s.19;
Cases:
HMRC manuals:
Commentary:
See also:
INHERITANCE TAX
Transfer of value
- General meaning
General
- A transfer of value is (IHTA s.3(1)):
(1) a disposition
(2) made by a person
(3) as a result of which the value of the person's estate immediately after the disposition is less than it would be but for the disposition.
Disposition
- Does not say disposition of an asset or property, just "disposition".
- ""Disposition" is a familiar enough word in the law of property and ordinarily means an act by which someone ceases to be the owner of that property in law or in equity: see the formulation by Mr. R. O. Wilberforce Q.C. in Grey v. Inland Revenue Commissioners [1960] A.C. 1, 18. " (Newlon Housing at 316, Lord Hoffmann)
- Can include property ceasing to exist:
- "In some contexts it may include the case in which the property ceases to exist. It is unnecessary to decide whether it has such an extended meaning in this case. There are contrary indications, namely that section 37 contemplates, first, that the disposition will be capable of being set aside and secondly, that the beneficiary of the disposition may be able to show that he took in good faith and without notice. On the other hand, I feel sure that "disposition" was intended to include the surrender of a subsisting proprietary interest, such as a tenancy for years or for life, so as to merge in the reversion or remainder: see Inland Revenue Commissioners v. Buchanan [1958] Ch. 289, 296, per Lord Goddard C.J." (Newlon Housing at 316 - 317, Lord Hoffmann)
- In that case, giving notice to terminate a tenancy was not a disposition of property because it simply meant that the lease terminated by effluxion of time (i.e. the property was exhausted).
- Incurring a liability is a disposition in this context (IHTM04023; McCutcheon §2-16)).
- But liabilities are only taken into account to the extent incurred for consideration (or imposed by law) (s.5(5)).
- Where contract is entered into at undervalue, presumably the contract is a disposition. Section 262 implies this is so.
- HMRC's view:
- "The word disposition has its wide natural meaning and we regard it as
-including all forms of disposals and transfers of cash and other property, and
- including both the creation and the release or other extinguishment of any debt or other right enforceable against a person or his estate." (IHTM04023)
Reduction in value of estate of transferor
- The relevant focus is upon the reduction in the value of assets in the transferor's hands, not upon any increase in the value of assets held in the hands of the transferee (Nelson Dance, §§6, 25).
- In principle, not valuing any asset given away.
- If T gifts 2% out of their 51% interest in a company, value the 51% and the 49%, not the 2%.
- Loss to transferor may be greater than gain to transferee - e.g. 51% shareholder transferring 2% (Nelson Dance, §6).
- Note that some reliefs/exemptions focus on the assets disposed of (Nelson Dance, §8).
Countervailing additions to estate
- If T's estate is added to as a result of the disposition, that will reduce or extinguish the transfer of value.
- E.g. in Melville, T's transfer of property to a trust was counter-balanced by T having a valuable right of appointment over the trust property (such powers are now excluded from being property - s.272).
- "[21] The taxpayers say that the value transferred is, by reason of the cl. 4 (c) power retained by the settlor, very small, the face value of the assets transferred at the date of each transfer having to be heavily discounted because the settlor if he survived until 4 March 1994 could reclaim the assets. The Revenue say that that is not correct, claiming that the cl. 4 (c) power is not "property" and so does not fall within the estate of the settlor. The value transferred is on that basis the full value of the assets transferred to the trustees."
Legislation: IHTA 1984, s.3;
Cases:
Newlon Housing Trust v. Alsulaimen [1999] 1 AC 313 (HoL);
Melville v. IRC [2001] EWCA Civ 1247;
HMRC v. Trustees of Nelson Dance Family Settlement [2009] EWHC 71 (Ch), Sales J;
HMRC manuals:
IHTM04023 - Structure of the charge: what is a disposition?;
Commentary: McCutcheon §2-16;
See also:
- Voidable gift
Whether and when transfer of value
- If gift is voidable, e.g. due to mistake, query whether T's right to set aside the gift may mean that there is no initial transfer of value.
- In McDowall, gifts that were voidable under a power of attorney gave rise to a right in the donor's estate:
"The position therefore is that, immediately before his death, WCM had the right to recover these gifts because they were made by his attorneys acting outwith their powers... WCM's right to recover these gifts was part of the property to which he was beneficially entitled immediately before his death. That right had not been prescribed immediately before his death, and the fact that no steps have been taken by the executors to recover these gifts within the ensuing five years seems to us to be irrelevant."
- Value was the value of the gifts because the deceased had an "unanswerable claim to recover the gifts".
- If the transfer was to a trust, however, query whether the right is a settlement power, and so not property (s.272, s.47A).
- If there is no initial transfer of value + T does not set aside the transaction for mistake, the omission is a disposition if:
(1) the omission is deliberate +
(2) the value of another person's estate or settled property is increased as a result.
- The disposition is at the latest time T could have exercised the right (s.3(3)).
Gift with reservation
- Whether or not T seeks to set aside the gift, the fact that T could set aside may well give rise to a gift with reservation of benefit.
Legislation:
Cases:
McDowall v. IRC [2004] STC (SCD) 22, Judge Gordon Reid;
HMRC manuals:
Commentary:
See also:
- Disposition by associated operations
General
- A transfer of value is a "disposition" that reduces the value of a person's estate (see above).
- Disposition includes a disposition "effected by associated operations" (IHTA s.272(1)).
- Transfer of value by associated operations treated as made at time of last one (s.268(3)).
- This may, for instance, mean that the transfer of value was within 7 years of death.
- The disposition by associated operations will be the combined effect of all such operations.
- E.g. if T sells 2% (s.10 exemption applied) and then gifts 49%, the associated operations disposition is of 51% at the later time of the 49% transfer.
- Calculate the effect on T's estate based on the market value (of 51%) at the time of the later transfer (which may be higher or lower than at the time of the actual operations).
- "The value transferred is usually the amount of the overall loss to the transferor’s estate measured at the time of the last operation." (IHTM14827 - HMRC's example bases tax on the increased value at the time of the later operation).
- If earlier operation also constituted a transfer of value by same transferor, that value reduces the combined transfer of value.
- Does not apply to operations amounting to transfers of value by other persons.
- Note that an earlier gift of excluded property will not give rise to a credit because it does not constitute a transfer of value.
- If earlier operation was an exempt inter-spouse transfer, combined transfer of value not reduced (s.268(3)).
- Thus, if T gives to T's spouse who gives to T's child, T makes an associated operation disposition to the child, value not reduced.
- But if T gives to T's brother who gives to T's child, T's associated operation disposition to the child is reduced to nil (because T gets credit for gift to brother).
Operations (scope)
- Expressly includes an omission (s.268).
- Includes making a will or exercising votes on shares (IHTM14826; Bambridge v IRC).
- Does not include automatic events like birth, death or the attainment of a specific age (IHTM14826).
- But where an interest is given contingently on an automatic event, the interest is given by the original operation, e.g. the trust deed (Bambridge v. IRC).
- "An interest in remainder, or, for that matter a contingent interest, given by settlement, is given by means of the settlement and not by means of the happening of the event which brings the interest into possession or, as the case may be, fulfils the contingency" (at 815).
Objective test: Operations affecting same property/property representing the property
- Two or more operations of any kind (s.268(1)):
- affecting the same property; or
- one of which affects some property and the other(s) of which affect property which represents (directly or indirectly) that property/income arising therefrom.
- No need to be effected by the same person or at the same time.
- Operation must "affect" the property (contrast with TOAA where it must be "in relation to" the assets).
- Probably includes: change of ownership, situs, physical or legal character.
- Same property
- Different parcels of shares (of the same class) in the same company are not the same property, even if they come from the same holding (Rysaffe, HC, §32; not considered in CoA (§26)).
Subjective test: Operations effected with reference to each other etc.
- Two or more operations of any kind where one is effected (s.268(1)):
- with reference to the other; or
- with a view to enabling the other to be effected; or
- with a view to facilitating the other being effected
+ any further operation having a like relation to any of those operations
- If one operation is effected with reference to another, the two are associated even if the latter was not effected with reference to the former.
- Not sufficient that the operations are part of a single scheme:
- "The argument is not so clear cut here, but on balance I do not think that this part of the paragraph applies either. It is true that each transfer was a part of one plan or scheme, but the transfer of parcel 1 to settlement 1 made no reference to the transfer of parcel 2 to settlement 2; and vice versa. Each transfer was effected in the knowledge that the other was being effected as well, but that does not seem to me to be the equivalent of saying that each transfer was effected 'with reference' to the other. So, with an acknowledgement that the contrary may be arguable because of the imprecise expression 'with reference to the other', my answer to this question (ii) is: no." (Rysaffe, HC, §37)
Legislation: IHTA s.268; s.272;
Cases:
Bambridge v. IRC [1955] 3 All ER 812 (HoL);
IRC v. Macpherson [1989] AC 159 (HoL);
Reynaud v. IRC [1999] STC (SCD) 185, Judge Avery Jones;
Rysaffe Trustee Co (CI) Limited v. IRC [2002] STC 872 (Park J);
CIR v. Rysaffe Trustee Company (CI) Limited [2003] EWCA Civ 356, Mummery, Schiemann, Dyson LJJ;
HMRC manuals:
IHTM14823 - Lifetime transfers: associated operations: the objective test;
IHTM14824 - Lifetime transfers: associated operations: the subjective test;
IHTM14826 - Lifetime transfers: associated operations: definition of terms;
Commentary: McCutheon, Ch.9;
See also:
- Limit on which associated operations are taken into account: must contribute to the loss to T's estate
The need for a limit on the scope of the associated operation provisions
- "It might be tempting to assume that any event which fell within this wide definition should be taken into account in determining what constituted a transaction for the purposes of section 20(4). However, counsel for the Crown accepted, rightly in my view, that some limitation must be imposed." (Macpherson).
The nature of the limit: associated operation must contribute to the transfer of value
- The statutory question is not whether there are associated operations but whether a disposition is "effected by associated operations".
- Authorities indicate that for an associated operation to be relevant to identifying a transfer of value it was contribute to the reduction of the estate.
- "An associated operation is relevant only if it is part of the scheme contributing to the reduction of the estate." (Reynaud, §17).
- HMRC agree:
- "In the case of a transfer of value under IHTA84/S3 (1), every associated operation which contributes to the loss to the transferor’s estate (IHTM04054) is a relevant operation. Any other operation, although it may be ‘associated’, is not relevant for the purpose of that provision." (IHTM14828)
- Rysaffe HC seemed to accept that the scope/relevance of associated operations was different for s.3 and s.43 (§30).
Authorities
- Macpherson:
- For the purposes of s.10, an associated operation need not "necessarily per se confer a benefit but it must form a part of and contribute to a scheme which does confer such a benefit" (Macpherson at 176).
- But if the transaction "contributed nothing to the conferment of the gratuitous benefit which had already been effected" it would not be relevant (Macpherson at 176).
- Reynaud:
- T settled shares qualifying for BPR on a trust, the company then purchased its own shares. HMRC argued that this should be treated as a transfer of cash.
- "Here the value of the estates of the brothers were diminished as a result of the gift into settlement alone. The purchase of own shares contributed nothing to the diminution which had already occurred and was not therefore a relevant associated operation." (§18).
- Rysaffe (CoA):
- HMRC attempt to treat 5 settlements made around the same time as a single disposition, and thus settlement (this would affect, at least, the rate of IHT on the 10 year charge - §4).
- "'Settlement' means any disposition or dispositions of property...whereby the property is for the time being...held in trust..."
- Held that the reference to dispositions including dispositions by associated operations does not apply/is not needed where the basic transaction does amount to a disposition.
- Instead, it applies where there is a dispute as to whether there is a disposition at all:
- "[23]...The inclusion of "associated operations" in the statutory description of "disposition" is not intended for cases, such as this, where there is no dispute that there was a "disposition" of property falling within section 43(2). They are intended for cases where there is a dispute as to whether there was a relevant "disposition" at all. The CIR may be entitled to invoke the extended description to catch a case which would not be regarded as a "disposition" of property in its ordinary and natural sense."
-Parry:
- UKSC explained that (for the purposes of s.10), to be relevant, the associated operation had to be part of a scheme "actually conferring, and intended to confer, such a benefit" (§77).
- That was satisfied in Macpherson because the evidence was that the distribution from the trust would not have happened unless the commercia,, but depreciatory transaction, had taken place:
- "In Macpherson, the two elements under consideration were linked in the scheme by a common intention - the trustees would not have made the appointment if the variation had not taken place - and the scheme was one intended to confer, and actually conferring, gratuitous benefit on the son by the appointment of the pictures. The variation agreement therefore satisfied Lord Jauncey’s requirements that it “form a part of and contribute to a scheme which does confer … a [gratuitous] benefit” (my emphasis) and is intended to confer a gratuitous benefit." (Parry, §88)
- It was not satisfied in Parry where the omission to take lifetime benefits following a pension transfer was a continuing intention that pre-dated the transfer:
- "[88] ... The omission had already been decided upon whilst the funds were in the section 32 policy and the sons could have benefitted from it without any move to the PPP. Moving the funds from one policy to the other (the “transfer”, focused upon by the Notice) was not a contributory part of the scheme to confer gratuitous benefit on the sons; it was a step taken solely to ensure that Morayford could not benefit, as the FTT were entitled to find on the very unusual evidence in this case. The omission and the transfer were not therefore, in my view, relevantly associated." (Parry, §88).
Horizontal and vertical aggregation of dispositions
- Rysaffe was an attempt by the Revenue to aggregate five separate dispositions of separate property to separate recipients (horizontal aggregation - see §20).
- Query whether the same applies to vertical aggregation, e.g. single arrangement under which
- A disposes to B who disposes to C.
- A transfers asset to B Ltd and then disposes of B Ltd - is that a disposition of the asset or B Ltd?
- Suggestion at Rysaffe §24 that associated operations may be relevant to determining what property has been disposed of.
- The legislation clearly anticipates that two operations, both amounting to a transfer of value, can be associated operations (s.268(3)).
- This must mean two dispositions can be associated operations (because a transfer of value is based on a disposition).
Legislation:
Cases:
IRC v. Macpherson [1989] AC 159 (HoL);
Reynaud v. IRC [1999] STC (SCD) 185, Judge Avery Jones;
Rysaffe Trustee Co (CI) Limited v. IRC [2002] STC 872 (Park J);
CIR v. Rysaffe Trustee Company (CI) Limited [2003] EWCA Civ 356, Mummery, Schiemann, Dyson LJJ;
HMRC manuals:
Commentary:
See also:
- Splitting a single transfer into multiple transfers
- Rysaffe HC:
- "[30] ... Mr Ewart identified two obvious cases where the extension of the meaning of 'disposition' to include a disposition by associated operations could be relevant in the context of s 3(1)...The other case which Mr Ewart identified is a case where an asset, instead of being transferred to a transferee by a single transfer of the whole asset, is fragmented and transferred in stages, with a view to achieving an overall reduction in the value transferred. For example, X wants to give a valuable freehold to Y, but a simple transfer of the freehold would give rise to a large transfer of value for inheritance tax purposes. Instead he first gives a medium length lease of the property to Y, and later he gives to Y the freehold reversion. If that was a case of two independent dispositions one can readily imagine arguments that the aggregate of their separate values would be considerably lower than the value of a simple one step transfer of the freehold. I agree with Mr Ewart that the possibility of manoeuvres like those two examples would have been obvious to the draftsman of the Finance Act 1975 (the original Act), and that the probability is that it was for that purpose, not for a purpose having anything to do with the use of 'disposition' in what is now s 43, that 'disposition' was defined to include a disposition by associated operations."
- HMRC give the example of gifting 100% of a company in three gifts where the combined total value of the gifts is less than 100% of the company.
- "The total of the individual transfers for Inheritance Tax (IHT) is only £86,000 but Tina had effectively given away £100,000 worth of assets. The legislation at IHTA84/S268 counters this in certain circumstances so that you can look at the overall effect of several events through the concept of ’associated operations’." (IHTM14821)
- Lease followed by transfer of freehold (IHTM14827).
- Sale for purchase price left outstanding followed by release of purchase price in stages (IHTM14834).
- Transfer of asset in stage (IHTM14835).
Legislation:
Cases:
Rysaffe Trustee Co (CI) Limited v. IRC [2002] STC 872 (Park J);
HMRC manuals:
IHTM14821 - Lifetime transfers: associated operations: why are the provisions necessary?;
IHTM14835 - Lifetime transfers: associated operations: transfer in stages;
Commentary:
See also:
- Successive disposals of property
- Rysaffe (HC):
- "[30] Mr Ewart identified two obvious cases where the extension of the meaning of 'disposition' to include a disposition by associated operations could be relevant in the context of s 3(1). One is where a disposition which is effectively by A to C is channelled through B with a view to picking up a saving of inheritance tax in the process. Instead of A transferring the property to C he transfers it to B, and B, pursuant to the scheme, makes an onward transfer to C. One can readily imagine cases where inheritance tax might, the associated operations provision apart, be avoided by an exercise of that nature. For example, an A to B transfer might have benefited from an exemption, such as that for transfers between a husband and wife, and for some reason there may be a lower liability on a transfer by B to C than there would have been on a direct transfer from A to C."
- In Hatton, T settled Trust 1 which gave T's daughter a reversionary interest, T's daughter then settled the reversionary interest on a very short IIP for T. Aim was for T's daughter to be settlor of 2nd trust so as to benefit from reversion to settlor relief.
- Held: single composite transaction, with T as settlor of 2nd trust.
- "In the present case, when viewed as a single transaction having a single legal result, the composite transaction is a settlement by Mrs Cole under which she was entitled to a beneficial interest in possession of the settled property until midnight on 12/13 August 1978."
- HMRC say:
- "The two settlements were associated operations and so constituted a single disposition under what is now IHTA84/S268. Applying what is now IHTA84/S43 (2), the two settlements may be treated as a single settlement made by the settlor of the first settlement." (IHTM14836)
Legislation:
Cases:
Hatton v. IRC [1992] STC 140, Chadwick J;
Rysaffe Trustee Co (CI) Limited v. IRC [2002] STC 872 (Park J);
HMRC manuals:
IHTM14836 - Lifetime transfers: associated operations: successive settlements;
Commentary:
See also:
- Omissions as dispositions and operations
- Operation expressly includes an omission (s.268; IHTM14826).
Legislation: IHTA s.268;
Cases:
HMRC manuals:
IHTM14826 - Lifetime transfers: associated operations: definition of terms;
Commentary:
See also:
Joint account
- Transfer to joint account/interest in joint account
Resulting trust unless rebutted or presumption of advancement applies
- As part of deciding what shares the account holders are entitled to, consider resulting trust.
- Rebuttable presumption that person who paid into the account entitled to that sum.
- Unless presumption of advancement applies.
- "Where a bank account-holder adds someone else's name to the account, the law presumes that a gift is not intended. See, for example, para.9-095 of Lewin on Trusts and see Re Northall (deceased) [2010] EWHC 1448 (Ch) David Richards J. The presumption may be rebutted by evidence, including evidence giving rise to a presumption of advancement." (Purvis, §34).
- HMRC's starting point is that account holders are entitled to the proportion of the account which they contributed (IHTM15042).
Money in account intended to belong to one person only until their death
- If no immediate gift is intended, but, instead, the intention is to provide easy access on death, there may be no immediate gift (Matthews, §18, Sillars, §11).
- This was the case in O'Neill, where the deceased did not tell the other account holder about the account.
Each joint holder has separate ownership of separate amount (tenants in common)
- In this situation, neither account holder has a right to withdraw more than their share (Matthews, §18).
- If there is no right to draw on the other person's share, the gift is complete at the time of the transfer to that person's share.
- Requires accounts to be kept:
- "At the other end of the spectrum is a tenancy in common with each joint holder having ownership of separate shares, as submitted by Mr Miller. That does not seem to be the case here. That would have required accounts to be kept of who owned the funds and would have required an understanding by the parties, which is lacking, of how deposits and withdrawals were dealt with." (Sillars, §11).
Either holder can draw on the account up to the full balance (joint tenants)
- There is no gift to the other account holder of amounts in the account at the time of paying in.
- Matthews: "I infer from what Mr Matthews said, and the way in which the account was operated, that either he or the Deceased could withdraw funds up to the total amount deposited for his or her own benefit."
- Each account holder has a general power over the whole fund (Matthews, §21, Sillars, §13, Taylor).
- Also a gift with reservation of benefit as possession and enjoyment not fully assumed by donee (Matthews, §22).
- Note the potential for double taxation (Sillars, §13).
- "[36]...A clear example is one falling within s.5(2) of the Act, the very common case of a joint bank account which permits any holder to draw on that account. The same property, the moneys in the account, is under s. 5 (2) taxable on the death of each holder. The Revenue in practice do not strictly enforce that provision and treat each holder as beneficially entitled only to the proportion of monies in the account which he has contributed." (Melville)
- HMRC say they limit a person's estate to the amount contribute (IHTM15042).
Legislation:
Cases:
O'Neill v. IRC [1998] STC (SCD) 110;
Melville v. IRC [2001] EWCA Civ 1247;
Sillars v. IRC [2004] STC (SCD) 180, Judge Avery Jones;
Taylor v Revenue and Customs Commissioners [2008] STC (SCD) 1159;
Matthews v. HMRC [2012] UKFTT 658 (TC), Judge Demack;
Purvis v. Purvis [2018] EWHC 1457 (Ch), Anderson QC;
HMRC manuals:
IHTM15042 - The extent of the share (England, Wales and Northern Ireland): Joint money accounts;
Commentary: McCutcheon §2-11;
See also:
- Transfer from joint account
- Withdrawals should be, so far as possible, set against a person's own contributions to the account (IHTM15042).
- If a person withdraws more than they contributed, but are entitled to do so, that will likely be a disposition at that time.
- If a person withdraws more than they contributed, but were not entitled to do so, they will likely hold the funds on constructive trust.
Legislation:
Cases:
HMRC manuals:
IHTM15042 - The extent of the share (England, Wales and Northern Ireland): Joint money accounts;
Commentary:
See also:
Wider effects of gifts
- Later gift taking earlier depreciatory transaction outside of s.10 (arm's length) exemption
- Depreciatory transaction followed by gift/sale, not within exclusion for arm's length transactions.
- "If an individual took steps which devalued his property on Monday with a view to making a gift thereof on Tuesday he would fail to satisfy the requirements of section 20(4) because the act of devaluation and the gift would be considered together." (Macpherson, at 174).
- e.g. if T sells 2% of T's 51% for the market value of the 2%, that may qualify for s.10 exemption
- But a subsequent gift of the remaining 49% (now a minority stake) may be an associated operation with the earlier 2% sale.
- In which case the large loss to T's estate on the 2% transfer is no longer protected by s.10.
Legislation:
Cases:
IRC v. Macpherson [1989] AC 159 (HoL);
HMRC manuals:
Commentary:
See also: