Withdrawals from off-shore joint bank accounts
In the recent case of Pflum v HMRC  UKFTT 365 (TC), the First-tier Tribunal has held that cash withdrawn by one joint holder from an off-shore joint bank account was not a remittance by the other joint holder who was a remittance basis taxpayer.
In this instance, Mr Pflum worked for a bank in London but was domiciled in Switzerland. Because he was not ordinarily resident in the UK, he chose to be taxed on the remittance basis, meaning that the amount on which he was taxed in the UK depended on the amount of funds he remitted to the UK.
Prior to 6 April 2008, a remittance basis taxpayer could gift income to another individual offshore who could then bring this money into the UK without triggering a taxable remittance, provided that the taxpayer did not derive a benefit from it. Following the coming into force of the Finance Act 2008, income gifted to another individual offshore who is a relevant person will be a taxable remittance when it is brought into or is enjoyed in the UK.
Mr Pflum’s salary was paid into a Guernsey bank account but funds were regularly transferred from this to an Isle of Man bank account which was held in the joint names of Mr Pflum and his girlfriend. The intention in setting up this account was that the girlfriend had an allowance on which to draw while she was studying in London. The only withdrawals that Mr Pflum made from the account were direct debits that covered expenses on the flat he rented in London with his girlfriend whereas Mr Pflum’s girlfriend made regular withdrawals. Evidence showed that Mr Pflum did not derive any benefit from these withdrawals.
HMRC argued that the account was held by the couple as joint tenants and that Mr Pflum beneficially owned all the sums in the account as they derived from his foreign earnings and therefore they were taxable remittances once withdrawals had been made from the account in the UK.
Mr Pflum, however, argued that the account was held as tenants in common, with his girlfriend’s share being 100% of the balance in the account. However, the Tribunal chose not to adopt either reasoning and preferring the logic in Re Bishop. In this case, it was held that the essence of a joint bank account, where withdrawals could be made by either party without restriction, was that the sums belonged to the party withdrawing them.
Post April 2008, Mr Pflum’s girlfriend would now be regarded as a relevant person and so the tax remittances would automatically be taxable remittances. However, the case remains relevant for enquiries into the pre-2008 tax returns of remittance basis tax payers and to situations where a joint account holder is not a relevant person, such as an adult child.
Nevertheless, it remains unclear whether the use of a joint credit card on similar facts would have produced the same outcome.
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