Joint accounts and Inheritance Tax

[derekthetortoise]

General question - if you hold a joint account, and one of the account holders dies, how much of the joint account would be considered part of the deceased's estate, for Inheritance Tax purposes?

 

Example 1

Husband and wife have a joint account of £100,000; husband dies.

Is £50,000 considered part of his estate, and the other £50,00 considered as just a part of the wife's assets?

Example 2

Husband, wife and two adult offspring have a joint account of £100,000; husband dies.

Is £25,000 considered part of his estate, and £25,000 considered part of each of the 3 dependants' assets?

[honeybee13]

Hello and welcome to CAG.

 

I think some of the answer could depend on the wording of your wills.

 

Can you tell us some more please?

 

My best, HB

[derekthetortoise]

Thanks for the thought, "Honeybee"; I appreciate it.

 

My wife and I have a fair amount of cash in joint accounts.

The thought occurred to me that, if our two sons were added as owners of the joint account, maybe that would mitigate the amount of Inheritance Tax due on the estate.

I guess that a proportionate share of the joint account might be considered as a 'gift', and subject to the normal IHT rules (7 years tapered relief?).

 

We are just about starting on will-writing (following the Which? advertising campaign!), so we are considering what kind of clauses to include.

We would rather dispose of some of the cash before we go, but not all of it! We may need some, for example, for care costs, and our sons would need access to the funds, so it's a practical as well as a legal consideration.

 

Thanks for considering my post !

[honeybee13]

Hello again.

 

I'll move you to the general legal forum for further advice, but I am wondering if you need to see a lawyer if you want to build in all of these features.

 

HB

[derekthetortoise]

Thanks again, HB !

 

Regards,

Derek

[steampowered]

When you have a joint bank account, each person has an equal right to the whole. You can't divvy it up 50/50. This means that when one of the holders of the account dies, the money will belong entirely to the survivor - regardless of the terms of the will. It will not part of the deceased person's estate.

 

For example if a husband and wife hold £100,000 in a joint account and the husband dies, none of the money would form part of the husband's estate. The entire £100,000 would be owned by the wife.

 

That is the legal position, although the inheritance tax position is different. My limited understanding of inheritance tax is that HMRC treats a joint account as being owned 50/50.

 

The other point to mention is that transfers between married partners are exempt from inheritance tax. So you'd only end up paying inheritance tax when the second spouse dies.

[derekthetortoise]

Thanks for those thoughts - I appreciate it !!

[Mr.P]

When you have a joint bank account, each person has an equal right to the whole. You can't divvy it up 50/50. This means that when one of the holders of the account dies, the money will belong entirely to the survivor - regardless of the terms of the will. It will not part of the deceased person's estate.

 

Before death, if one of the account holders is made bankrupt, the Official Receiver could lay claim to that share. If one or both sons predecease the OP, then that share could form part of their estate. The OP really needs to see a solicitor with experience in wills and estate planning, not one of these will writing outfits.

 

A suitable solicitor will be able to offer advice on reducing any IHT liabilities, explore various scenarios should one or beneficiaries die before the testator. They will also store the will free of charge along with any supporting documents and won't insist on being named as an executor.

 

Spending a few hundred pounds with a good solicitor will save thousands after death if the will turns out to be invalid.

[derekthetortoise]

Thank you, Mr.P !

[ericsbrother]

a joint account is like a joint tenancy, it belongs to both parties and the survivor owns it all upon the death of the other. So for IHT purposes it belongs to the survivor and not part of the deceased persons estate. If both of you are well off individually as well as jointly then you may want to make provision to those who will inherit after the surviving spouse dies if the total estate is going to be more than £600k

for example if house jointly and severally owned and worth £500k and you have £100k in the bank and no will, the surviving spouse will get the lot and no tax due when they die either. If house in 1 persons name and they die first then IHT will be based on a fixed partition of the assets as the house is more than the £300k individual threshold so make sure you have a will that leaves as much that isnt jointly owned to your spouse as allowable under tax rules. Property and cash is easy to sort out, other estate such as businesses, stocks and shares etc are harder to divi up as their value isnt fixed at the time of making the will. this is where a good solicitor will earn their money and not sorting out the mess afterwards.