Happy to have a go at a reply, since no one else has jumped in yet.
I think the starting point has to be working with the actual historic facts and applying them to a reasonable set of assumptions. If that gives an answer you’re happy with - great. If not, then I’d consider two things:
(i) try a different (but still reasonable) set of assumptions, and
(ii) consider whether future structuring of the facts can help support a more favourable position.
My initial approach would be to imagine H and W each have their own “income account” - a notional or nominal account that we use to track how their respective incomes are used. Something like this:
- Increase the notional sole account by the income actually paid into their sole bank account.
- Decrease it by amounts spent from their sole account.
Rather than just treat a joint account as being split 50:50, I’d suggest allocating a notional share of the joint account to each partner. This notional share would:
- Increase by the income they personally contribute to the joint account, and
- Decrease by:
- their personal spending from the joint account,
- their proportionate share of joint expenses paid from the account.
If their notional joint account share becomes “overdrawn”, you’d ask how that shortfall was actually covered - was it really funded from their own capital, or effectively met by the partner’s notional surplus?
To assess available surplus income (for the purposes of the normal expenditure out of income exemption), I’d look at:
The aggregate of:
- the balance on their notional sole income account, plus
- the balance of their notional share of the joint account.
That composite figure should give a reasonable, and objectively supportable, view of surplus income attributable to each individual.
As for the split of joint expenses - 50:50 is usually a fair and pragmatic starting point unless there’s a reason to do otherwise. If H is a student and exempt from council tax, then maybe W bears the full cost. Or if W wants a new MacBook and H buys it on her behalf using his student discount, that’s probably W’s expense.
If this analysis doesn’t get you the outcome you want - especially in relation to future gifts - then consider adjusting the facts. For instance, W could have her pension or dividends paid into her sole account, and make her regular gifts from there.
On the specific point of the £46,000 joint life second death policy - I’d apply the same general approach.
The key question is: who is actually making the expenditure? The legislation focuses on who is paying, not who benefits.
I don’t know enough about setting up life policies but the actual way it was set up will probably influence who the expenditure is attributed so. So I’d ask: who arranged the policy? If W signed the contract solely then, absent further evidence, I’d treat the premium as her expenditure. If it is her expenditure, paid from the joint account and W’s notional share can’t cover it, then it may be reasonable to view the excess as funded by H’s notional joint account share.
I’m conscious I have not justified what I’m saying by reference to legislation / HMRC guidance but the post has got long enough already.
And I’d be very happy to hear other views on this…