Payments out of income for IHT purposes

[Tim63]

The account used was a joint account.

My parents operated a single current account and all income was received into this account and all payments made from this account. They would both have regarded all income as joint income and all expenditure as joint expenditure, so the issue arises because HMRC (quite understandably) attribute income to an individual. Given that my parents' intention (both implicit and explicit) was to gift their joint surplus income, I feel entitled to mirror that intention in completing the IHT403 for my mother and ultimately my father by matching the gifts to the surplus income. As most of their income was attributable to one or other of them and splitting expenditure other than 50/50 seems to me to be largely unjustifiable, I am left with matching the gifts to the surplus income - which is demonstrably their intention even though the issue was never contemplated in advance.

[TW1234]

On a simple view, the income was not joint but arose from seperate individuals who then amalgamated it. This should be identifiable from your available accounts.
The expenditure would be reasonably apportioned 50/50.
This will give unequal amounts available to be classed as surplus income. ( your father will show as having having a bigger surplus available than your mother.)
If the gift payments were made from the joint account, it could be assumed that these were also 50/50 from the account holders.
The amount of the gift to be considered as a PET from your mother's estate would then be half the total gift less her surplus income as calculated.
A similar calculation could be applied in the eventuality of your father's death.

[TW1234]

NB Other readers may wish to consider the benefits of first transferring funds into individual accounts that are used to make gift payments and so clearly identify the donor.

[Tim63]

Thanks for that TW1234.

However (fortunately for me) even HMRC accepts that the situation with gifts from a joint account is not quite as simple as you suggest in attributing them 50/50. There is case law on this subject and I'm going to paraphrase some of the conclusions horribly, but suffice to say that there have been successful arguments (by HMRC) that a joint account can end up being treated as belonging entirely to the person that funded that account if they have full access to the account. The inference of this is that gifts from a joint account can also be interpreted as being the gift of the person who funded the account or in a ratio based on the joint funding of that account.

I think your end advice about making gifts from individual accounts is probably good advice to those in a position to action it, but the situation with joint accounts is not black and white.

[TW1234]

I understand your recognition of some circumstances in which a joint account is apportioned based on contributions, but this would not be the normal situation for a married couple.
You would be in a difficult position to assemble an allocation that covered all the proportioned outgoings.

[JanneG]

I have a similar problem. I was regularly paid an amount from excess income from a joint account which was the my parents only bank account but my father's occupational + state pension was x 10 my mothers. Splitting the payments 50:50 makes no sense as my mother would be paying out more than her pension income and my fathers 403 form numbers would then not tally with PAYE tax returns. I rang the probate helpline and was told to split in the actual ratio of incomes into the joint account and this split could vary year-by-year as they subsequently got Attendance allowance at different times and rates. I have a big Excel spreadsheet that assigns the payments from excess income between the two of them and the split varies between 90:10 to 84:16 but overall HMRC will get a self-consistent statement ... or that is my sincere hope. Any comments /insights on whether my logic passes muster most welcome.