Money withdrawn from joint a/c belongs to one who withdraws it

PrintPDF

UK – First Tier Tribunal Tax Chamber

Klaus Otto Pflum

v.

Commissioners for Her Majesty’s Revenue and Customs

APPEAL No.TC/2011/04180

JUNE 1, 2012

We reject HMRC’s submissions on the nature of a joint bank account. During the hearing we drew the attention of the parties to the case of Re Bishop [1965] Ch 450, which had not been cited to us. The facts of that case were that a husband and wife opened a joint bank account to which they both contributed unequal amounts out of their own resources. The account was not opened for any specific purpose. Monies were withdrawn at will by both spouses for their own purposes, and for housekeeping and investment purposes. A feature of the account was lack of any pattern of payments from it. The question to be determined was whether any investments bought by the husband out of the monies in the account were owned solely by him or were owned jointly with his wife. In holding that the investments concerned were owned solely by the husband, Stamp J at Page 456 of the judgment said:

“Where a husband and wife open a joint account at a bank on terms that cheques may be drawn on the account by either of them, then, in my judgment, in the absence of facts or circumstances which indicate that the account was intended, or was kept, for some specific or limited purpose, each spouse can draw upon it not only for the benefit of both spouses but for his or her own benefit. Each spouse, in drawing money out of the account, is to be treated as doing so with the authority of the other and, in my judgment, if one of the spouses purchases a chattel for his own benefit or an investment in his or her own name, that chattel or investment belongs to the person in whose name it is purchased or invested: for in such a case there is, in my judgment, no equity in the other spouse to displace the legal ownership of the one in whose name the investment is purchased. What is purchased is not to be regarded as purchased out of a fund belonging to the spouses in the proportions in which they contribute to the account or in equal proportions, but out of a pool or fund of which they were, at law and in equity, joint tenants”.

We see no reason why these principles should not apply to an account held by any two persons, whether or not they are husband and wife. If HMRC are right, and the joint tenancy in the Isle of Man Account has not been severed, it appears to us that the funds held in such account where there is no restriction on the ability of either holder to draw on them, are available to either party and any asset acquired with them will belong to the party making the relevant withdrawal. The essence of joint ownership of a bank account where withdrawals can be made without restriction by either party is that the sums belong to the party who withdraws them, and this principle underlies the decision in Re Bishop.
Applying this principle to the present case, the monies held in the account must be regarded as being at the joint disposal of Mr and Mrs Pflum which means when the mandate is such that either party can draw on them, that either party is free to withdraw and spend them as he or she wishes. In practice most withdrawals were made by Mrs Pflum without reference to Mr Pflum. Thus when she withdrew sums in the UK using the debit card, the cash so withdrawn would be her own money and she was drawing on an asset which was just as much her own asset as it was Mr Pflum’s. That is the essence of a joint bank account held by the holders as joint tenants. We therefore reject Mrs Teggart’s submission that because the monies were derived from Mr Pflum’s earnings he was to be regarded as not having alienated them, in the absence of clear evidence of an intention to sever the joint tenancy and confer beneficial ownership on Mrs Pflum. The application of this principle also leads to the same conclusion in relation to purchases made through use of the debit card in the UK.
The consequence of this finding is that none of these withdrawals and purchases is to be regarded as remittances by Mr Pflum to the UK for the purposes of Section 26 of ITEPA.
In the light of this analysis, it has not been necessary for us to consider whether the joint tenancy was severed in the manner submitted by Mr Churchill, but on the basis of the facts that we have found, our conclusion is that it was intended that the monies held in the account were held for Mrs Pflum’s sole benefit, subject to payments in respect of Mr Pflum’s liability under the direct debits identified above, with the result that the withdrawals and purchases made in the UK by Mrs Pflum should not be regarded as remittances to the UK by Mr Pflum.
Consequently our decision is that Mr Pflum has been overcharged by the amendments made to his self-assessment returns for the year ended 5 April 2007 and the year ended 5 April 2009 by the inclusion of the 2006-2007 disputed remittances and the 2007-2008 disputed remittances. The appeal is allowed and those assessments should be reduced accordingly.
This document contains full findings of fact and reasons for the decision. Any party dissatisfied with this decision has a right to apply for permission to appeal against it pursuant to Rule 39 of the Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009. The application must be received by this Tribunal not later than 56 days after this decision is sent to that party. The parties are referred to “Guidance to accompany a Decision from the First-tier Tribunal (Tax Chamber)” which accompanies and forms part of this decision notice.