Q: I AM trying to get HM Revenue & Customs to give me definitive guidelines to my inheritance tax (IHT) queries relating to regular gifts as part of normal expenditures out of taxed income, but I’m being fobbed off.
For the past 50 years my wife and I have operated a joint bank account, into which is paid my company pension and our state pensions. From that account all payments are made for all our expenses, so we can easily see what has been spent throughout each tax year. We each also draw money from ATMs, to meet small cash expenditures. The expenditures from the account are for our equal benefit. When calculating the split of normal expenditures between us, is a 50/50 split acceptable to HMRC, or do we need to keep even more detailed records?
A: AS A husband and wife are treated as individuals for the purposes of IHT the ideal approach would be to have separate bank accounts so that income and expenditure for each could be easily identified.
There is no strict guidance in HMRC’s internal IHT manual in relation to the treatment of joint bank accounts and expenditure from such accounts, but I would agree a reasonable approach would be to treat the expenditure as a 50/50 split. I would also consider it sufficient to note the cash withdrawal as being in relation to the general cost of day-to-day living expenses.
On this basis, you should demonstrate that you have excess income with which to make gifts, which can be treated as normal expenditure out of income. If your wife’s income is such that she is not able to benefit from this she will need to rely on her annual IHT exemption of £3,000. Any excess will be treated as a potentially exempt transfer and only escape being included as part of her estate for IHT purposes on her surviving seven years from the date of the gift.
l Ross Mackenzie is a tax partner at Mazars Scotland