HMRC, joint ownership of savings?

[sloth]

I'm not sure if this is the right place to ask about this-if not, please point me in the right direction.

My wife and I are expat UK citizens currently living and working in Australia. We plan to return to the UK in 2023 at which point we will both be retired and doing no paid work. We will by then be aged 67(me) and 60.

Prior to leaving Australia we plan to sell/liquidate all our assets here (super funds in individual names, joint investments in taxed accounts, jointly owned house), pool the proceeds of all that into a joint Australian current account, and transfer it to the UK and put it into our joint Nationwide current account. We then intend to buy a house in joint names, leaving us with a pot of cash to invest to fund our retirement.

Due to living abroad for many years, we don't have tax-sheltered accounts (e.g. ISAs, or SIPPs), so initially everything will be in taxed accounts although we plan to move what we can in line with our yearly allowances into ISAs and SIPPs ( I know that currently each of us can put 20k pa into an ISA plus 2880 into a SIPP so moving it will take some time).

When we arrive back in the UK I will already be receiving the full SP. My wife will have no income.

This is my question: in order to make full use of our personal allowances, given that I will already be getting c£9k in SP, we will need to purchase income-producing funds/ETFs in unequal proportions so that my wife's holdings are 3x mine. Can we arbitrarily allocate our initial savings pot as we like from our Nationwide account or will HMRC take the view that we each own 50% and so we will be unable to do this? Or do they not care?

[Gengulphus]

For assets (including cash) that you hold in joint accounts, HMRC will treat them and any income they generate as 50% owned by each of you, at least by default. I think I saw some stuff years ago saying that one could get them to accept a different split, but I don't remember enough about it to give practical details such as how easy or difficult it is or what (if any) supporting evidence needs to be provided to HMRC. So I'll leave that aspect for others to answer!

For assets that each of you holds in individual accounts, HMRC will treat them and any income they generate as 100% owned by the account holder, again by default (one definite exception to that is assets held on behalf of someone else, typically indicated by 'designating' the account with the initials of the someone else). So a potential way of making the situation clear to HMRC would be to put enough into an account individually owned by your wife to give her an income roughly equal to your State Pension income, keeping the rest in a joint account.

The only problems I see with that solution are the extra hassle of running an individual account and a joint account rather than just a joint account (though I'd guess that won't be all that significant given that you're likely to also be running a couple of ISAs and a couple of SIPPs), and the fact that if your wife dies before you do, her part of jointly-held assets will automatically transfer to you by survivorship, whereas assets held individually by her will be transferred by her will (or intestacy) - a less automatic process that will take a bit of time. To deal with the main effect of the latter, make certain that you have enough in jointly-held assets that you'll be able to survive on them plus your State Pension if you have trouble accessing your wife's individually-held assets for a while following her death.

Incidentally, ISAs and SIPPs have to be held individually, not jointly, so that point might eventually become relevant to both of you after you've managed to transfer enough into them: you'll each want to be able to survive for a while following the other's death on your own individually-held assets and the jointly-held assets. But as you say, moving the assets into ISAs and SIPPs will take some time, so 'eventually' is probably quite a few years away.

Finally, I should mention that the transfers of ownership involved in moving jointly-held assets into individual ownership shouldn't be a tax problem. That's basically because gifts don't cause Income Tax liabilities, and although they can cause CGT and Inheritance Tax liabilities, each of those taxes has rules that essentially say it doesn't apply to gifts between spouses. I would steer clear of behaviour that suggests that the gifts concerned aren't genuine gifts, such as a husband 'giving' his wife a shareholding just before it goes ex-dividend and the wife 'giving' the shareholding back to him just afterwards to cause the dividend income to be received by the wife rather than himself, but avoiding that sort of clearly-artificial device is probably all that's needed.

Gengulphus

[bluedonkey]

Not much to add, other than to confirm that income from assets jointly owned by husband and wife is treated by HMRC as arising 50:50 to each spouse. G's suggestion should work: just invest enough in income producing assets in your wife's sole name to produce the required level of income. The fact that the wife's ETF for instance was funded by money from a jointly owned Nationwide account won't be an issue tax-wise.

There are ways for income from jointly owned assets to be split other than 50:50 but I don't think that's a practical alternative in this case.

[Lootman]

For assets (including cash) that you hold in joint accounts, HMRC will treat them and any income they generate as 50% owned by each of you, at least by default. I think I saw some stuff years ago saying that one could get them to accept a different split, but I don't remember enough about it to give practical details such as how easy or difficult it is or what (if any) supporting evidence needs to be provided to HMRC. So I'll leave that aspect for others to answer!

For a number of years my wife and I jointly owned a holiday rental property. During that time all the rents were paid to my wife, who declared all the income, and that was accepted.

Now you are probably going to say that that was wrong and it only worked because HMRC never looked at it. But actually they did look into it and in fact that income was subject to an investigation. As a result some additional tax was due to be paid. But the point is that the investigating official was fully aware that all the income had been paid to and declared by just one of us and they had no problem with that. She explained to them that we set it up that way because she managed the place and I did not have anything to do with the day-to-day running of it. Moreover she also paid all of the expenses in connection with it.

So I can confirm that HMRC will consider alternate splits of income from jointly-owned assets. You just need to make a case for that being reasonable. It probably helps if the person receiving more than the 50% share is not in a much lower tax bracket, I would imagine.

[sloth]

Many thanks for your replies.

I realise I should not have said wife, as we are not married nor in a civil partnership, but rather we have been living together for 20+ years in a de facto relationship as husband and wife.

Does this make a difference?

If I can emphasise that my query only relates to the initial splitting of our joint savings pot (before proceeding to buy any income-producing assets in sole names).

[Gengulphus]

Many thanks for your replies.

I realise I should not have said wife, as we are not married nor in a civil partnership, but rather we have been living together for 20+ years in a de facto relationship as husband and wife.

Does this make a difference?

If I can emphasise that my query only relates to the initial splitting of our joint savings pot (before proceeding to buy any income-producing assets in sole names).

Yes, it makes a difference. For the following, someone who one is not legally married to is definitely not one's spouse. At least in some cases (and possibly all - I'm not certain), to get the advantage of being a spouse or civil partner, one must also not be separated from them - i.e. one must be living together with them as husband and wife, or at least only prevented by external circumstances such as job requirements from doing so. But on its own, living together as husband and wife is not enough to qualify as being spouses.

The main differences it makes are:

* Inheritance Tax: Legacies and lifetime gifts to one's spouse or civil partner are exempt from Inheritance Tax, legacies and lifetime gifts to other partners are not.

* On a related point to Inheritance Tax, intestacy rules make provision for spouses and civil partners but not for other partners.

* CGT: A gift of an asset is normally treated as though the recipient had bought it from you for its market value at the time of the gift, so that you are treated as having realised a gain equal to that market value minus the total of your allowable costs on the asset, and for any subsequent disposal the recipient is treated as having an allowable cost equal to that market value. But a gift to your spouse or civil partner is instead treated as though they had bought it from you for exactly the total of your allowable costs on the asset, so that you are treated as having made neither a gain nor a loss on the asset, and for any subsequent disposal they are treated as having an allowable cost equal to the total of your allowable costs.

It's also worth mentioning that for CGT purposes, all costs and disposal proceeds are valued in pounds sterling at the time that the cost or disposal happens, after which the gain or loss is calculated - you never calculate the gain or loss in another currency and then convert that gain or loss to sterling. The net result is that no gain or loss will ever be calculated on a sterling cash asset, but one can be on other cash assets, such as Australian dollars.

One point I'm uncertain about is how assets owned at the time of immigration into the UK and becoming a UK taxpayer are dealt with - the two obvious possibilities are that either CGT looks back to determine all one's past allowable costs, even though one was not a UK taxpayer at the time, or that it treats the assets as though they were acquired at market value at the time of immigration. Hopefully someone more knowledgable than me will know about this...

Gengulphus

[bluedonkey]

Many thanks for your replies.

I realise I should not have said wife, as we are not married nor in a civil partnership, but rather we have been living together for 20+ years in a de facto relationship as husband and wife.

Does this make a difference?

If I can emphasise that my query only relates to the initial splitting of our joint savings pot (before proceeding to buy any income-producing assets in sole names).

Yes, it makes a difference. Ignore everything I said in the previous post.

[bluedonkey]

For assets (including cash) that you hold in joint accounts, HMRC will treat them and any income they generate as 50% owned by each of you, at least by default. I think I saw some stuff years ago saying that one could get them to accept a different split, but I don't remember enough about it to give practical details such as how easy or difficult it is or what (if any) supporting evidence needs to be provided to HMRC. So I'll leave that aspect for others to answer!

For a number of years my wife and I jointly owned a holiday rental property. During that time all the rents were paid to my wife, who declared all the income, and that was accepted.

Now you are probably going to say that that was wrong and it only worked because HMRC never looked at it. But actually they did look into it and in fact that income was subject to an investigation. As a result some additional tax was due to be paid. But the point is that the investigating official was fully aware that all the income had been paid to and declared by just one of us and they had no problem with that. She explained to them that we set it up that way because she managed the place and I did not have anything to do with the day-to-day running of it. Moreover she also paid all of the expenses in connection with it.

So I can confirm that HMRC will consider alternate splits of income from jointly-owned assets. You just need to make a case for that being reasonable. It probably helps if the person receiving more than the 50% share is not in a much lower tax bracket, I would imagine.

That's interesting. I wouldn't advise others to rely on it as being a general rule though.

[Lootman]

For assets (including cash) that you hold in joint accounts, HMRC will treat them and any income they generate as 50% owned by each of you, at least by default. I think I saw some stuff years ago saying that one could get them to accept a different split, but I don't remember enough about it to give practical details such as how easy or difficult it is or what (if any) supporting evidence needs to be provided to HMRC. So I'll leave that aspect for others to answer!

For a number of years my wife and I jointly owned a holiday rental property. During that time all the rents were paid to my wife, who declared all the income, and that was accepted.

Now you are probably going to say that that was wrong and it only worked because HMRC never looked at it. But actually they did look into it and in fact that income was subject to an investigation. As a result some additional tax was due to be paid. But the point is that the investigating official was fully aware that all the income had been paid to and declared by just one of us and they had no problem with that. She explained to them that we set it up that way because she managed the place and I did not have anything to do with the day-to-day running of it. Moreover she also paid all of the expenses in connection with it.

So I can confirm that HMRC will consider alternate splits of income from jointly-owned assets. You just need to make a case for that being reasonable. It probably helps if the person receiving more than the 50% share is not in a much lower tax bracket, I would imagine.

That's interesting. I wouldn't advise others to rely on it as being a general rule though.

I wasn't advising anyone to do it. If you want to direct income to a spouse who is in a lower tax bracket then it would best to ensure the asset producing that income is owned only by that spouse. Easy to do since transfers between spouses do not attract tax.

But where both spouses are in the same tax bracket, it is entirely possible that HMRC would not be concerned if the split was not 50/50 since it would not affect the total tax due.

[JonE]

... At least in some cases (and possibly all - I'm not certain), to get the advantage of being a spouse or civil partner, one must also not be separated from them - i.e. one must be living together with them as husband and wife, or at least only prevented by external circumstances such as job requirements from doing so.

Interesting point is that IT & CGT both look to whether the spouses/CPs are living together. HS281 expands on this and includes mention that the two are living together unless 'separated in such circumstances that the separation is likely to be permanent'. It also mentions that, in the event of separation, transfers between them in the tax-year of separation are no-loss/no-gain if they were living together at any point in the tax-year - not necessarily at the time of transfer. Since I'll be mentioning it in a later post, 'Form 17' ceases to have effect on the precise date the couple stop living together.

IHT looks directly to the legal marital status regardless of any separation.

Cheers!

[JonE]

If you want to direct income to a spouse who is in a lower tax bracket then it would best to ensure the asset producing that income is owned only by that spouse. Easy to do since transfers between spouses do not attract tax.

Not so easy to alter legal ownership if it's a mortgaged property - but beneficial ownership is a different matter. Form 17 is the orthodox way to handle this

I have a file note from long ago recording that the split of jointly-owned assets can be allocated without regard to tax brackets or needing a reasonable argument if both husband and wife (or both civil partners) have signed a declaration under ICTA88/S282B or ITA07/S837 stating their beneficial interests in both the property and the income arising from it - but a declaration is only valid if their interests in the income and in the property itself correspond.

I also recall (but can find no written record of it) that a discussion on TMF (possibly PIP) set out a mechanism involving an undocumented lease to just one spouse such that the ownership of the property was unchanged but the entitlement to all income was with the leaseholder (the owner of the asset that is the lease). Some may prefer this approach of separating CGT and IT aspects rather than risk getting tied-up with Form 17. What I do have a record of is this with regard to an undocumented declaration of trust :
http://www.hmrc.gov.uk/manuals/cgmanual/CG70291.htm

Cheers!

[JonE]

Form 17 is the orthodox way to handle this

I was too slow to notice that an edit is required so it reads 'Form 17 is the orthodox way to handle this for 'tenants in common'.

Cheers!

[Adamski]

You should get married if you care about your partner and making things easier if you get ill or worse. Not wishing to be morbid but..if that's off the cards then could get professional advice to protect your savings, legacy in the event of your death.

[Lootman]

Form 17 is the orthodox way to handle this

I was too slow to notice that an edit is required so it reads 'Form 17 is the orthodox way to handle this for 'tenants in common'.

Yes, I had assumed that since joint tenancies have to be 50/50, or equal shares in the event of more than two tenants. So it only make sense for TICs.

[Lootman]

Form 17 is the orthodox way to handle this

I was too slow to notice that an edit is required so it reads 'Form 17 is the orthodox way to handle this for 'tenants in common'.

Yes, I had assumed that since joint tenancies have to be 50/50, or equal shares in the event of more than two tenants. So it only make sense for TICs.

When we did something like that we used a declaration of trust.

[JonE]

When we did something like that we used a declaration of trust.

Yes. You mentioned that you were dealing with a Furnished Holiday Let so Form 17 wouldn't have been effective anyway.

We had some properties (as TIC) which were, at various times, used for BTL, FHL (a 'trade' for tax purposes) and even, in a couple of cases, as our PPR so plenty of elections and other variables to keep track of. Never used Form 17 so never had to consider that the effect of same could depend on what form of income a property was generating at any one time.

Cheers!