Money spent from a joint bank account belongs to the person withdrawing the cash and not another signatory on the account, a tax tribunal has ruled.
HM Revenue & Customs lost the case on appeal by Klaus Pflum, who claimed he should not pay tax on cash machine withdrawals made by his partner to settle shopping bills.
Mr Pflum arrived in the UK on April 1, 2006 with the intention of remaining for 2-3 years. He was employed in London by Nomura. His job ended on October 31, 2008, and he left the UK to live in Switzerland.
During that time, he filed tax returns in the UK relating to remitted income.
HMRC objected to the amounts, claiming he should also pay an extra £69,500 tax on money withdrawn and spent in the UK from an offshore joint account he held with his partner as this was remitted income as well.
She withdrew the cash from ATMs and spent the money on shopping and paying household bills.
Mr Pflum appealed HMRC’s decision and the case was heard before a tax tribunal in London, which upheld his claim.
The tribunal heard an earlier case supported Mr Pflum’s appeal. In that case (Re Bishop [1965] Ch
450), the ruling was monies withdrawn by an account signatory belonged to them and that other signatories had no liability to tax on that money.
The tribunal decided Mr Pflum had been overcharged by HMRC amending his self-assessment returns and ordered the amounts to be reduced.
“We see no reason why these principles should not apply to an account held by any two persons,” said the tribunal.
“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.”
