Joint accounts - gift treatment?

[Newroad]

Hi All.

I'll try and be generally clear about how I ask this question - hoping not to be specifically unclear. If I succeed, you'll get the general tenor.

I understand that under UK law, gifts are potentially part of an (inheritance) taxable estate up to seven years after they're made. Mrs Newroad and I have Joint Accounts, from which (for example) payments are made to the children's JISA's. If one of us died with the seven years after these payments, who would be considered to have made them and any other relevant payments, e.g.

The person who died
The person who didn't die
50/50
The survivor's choice
Other (please explain?)

If there are other wrinkles, e.g. payments to dependents being non-taxable, I'd be interested about that too - but that's not the main question - for that purpose, please consider a scenario where a given payment is potentially subject to inheritance tax.

Regards, Newroad

[Allitnil]

Without any other evidence, I suspect the default poisition would be that the gifts were made jointly, ie 50% from you & 50% from Mrs Newroad.

If you want a different split then the easiest thing to do would be to write & sign a memorandum to describe the exact nature of the gift (date, amount, who it is from, who it is to). You can also use the memorandum to specify who should pay any IHT tax that might become due, eg that it should be paid out of your estate. Make sure the memorandum is kept somewhere your executors can easily find it!

[Gengulphus]

Hi All.

I'll try and be generally clear about how I ask this question - hoping not to be specifically unclear. If I succeed, you'll get the general tenor.

I understand that under UK law, gifts are potentially part of an (inheritance) taxable estate up to seven years after they're made. Mrs Newroad and I have Joint Accounts, from which (for example) payments are made to the children's JISA's. If one of us died with the seven years after these payments, who would be considered to have made them and any other relevant payments, e.g.

The person who died
The person who didn't die
50/50
The survivor's choice
Other (please explain?)

It's the beneficial owner of the assets given who is considered to have made the gift, and a joint account held by two people is normally considered to be 50% beneficially owned by each. If I remember correctly, it is possible to document a joint account in such a way as to vary that 50:50 split of beneficial ownership, but I don't remember the details... So I don't think "normally" in that statement means "always", just that the cases where it's not 50:50 aren't usual, and I believe they need to be deliberately set up rather than occurring 'by accident'.

So I'm fairly certain the 'default' answer to your question is 50:50. If you want some other answer, or to leave it crystal-clear, one option that occurs to me is to open sole accounts for each of you and Mrs Newroad, then make the gifts in two stages: first transfer the amount of the gift from the joint account to the sole account of the person you want to be on record as making the gift, and then transfer it from that sole account to the gift recipient. That way, the first transfer transfer 50% of the amount of the gift from one spouse to the other, and so is partially an exempt gift between spouses, and then the second is clearly a gift by the intended giver to the intended recipient.

Edit: I'm not arguing against Allitnil's suggestion of a memorandum to describe the exact nature of the gift (date, amount, who it is from, who it is to), which I've only seen after this post was submitted. I strongly suspect it will do the job, but as Allitnil indicates, it does depend on the memorandum coming to the executor's attention - this makes it visible in the bank account statements, which the executor basically has to see to be able to do the job. And quite possibly a 'belt & braces' solution combining the two would be better than either of them: make the gifts through sole bank accounts and leave a memorandum for the executor explaining what you've done.

Gengulphus

[Newroad]

Thanks both.

Your similar responses make sense.

Let me add a follow up question. In very broad terms, assume child gets approximately ...

1. £100 per month from me and Mrs Newroad
2. £50 a month from one set of grandparents
3. £1000 once a year from the other set of grandparents

(1) and (2) are from UK residents, but (3) is from offshore - and not a jurisdiction where II will allow direct contributions (for fear of money laundering etc - though very much a generally law abiding first world country, not a tax haven). Hence (3) comes through our bank accounts before going to II.

Carrying on from Allitnil's idea, do you think it would be reasonable to cover that explicitly in any "memorandum" making it clear that such funds are simply "passing through" the account from family - and are not actually a personal gift from Mrs Newroad and I? And would it likely make any difference to the view re inheritance tax?

Regards, Newroad

[Gengulphus]

(1) and (2) are from UK residents, but (3) is from offshore - and not a jurisdiction where II will allow direct contributions (for fear of money laundering etc - though very much a generally law abiding first world country, not a tax haven). Hence (3) comes through our bank accounts before going to II.

Carrying on from Allitnil's idea, do you think it would be reasonable to cover that explicitly in any "memorandum" making it clear that such funds are simply "passing through" the account from family - and are not actually a personal gift from Mrs Newroad and I? ...

Yes. As a general rule, I think it's always good to try to make certain that one's executor knows what went on in any situation where it might be confusing if they were only to see bank statements and the like - being someone's executor can be a difficult enough job anyway without having extra unnecessary difficulties added!

... And would it likely make any difference to the view re inheritance tax?

I cannot see any real possibility of it making a negative difference, and think it could make a positive one. But I should perhaps clarify that I didn't respond at all to your OP's subsidiary question "If there are other wrinkles, e.g. payments to dependents being non-taxable, I'd be interested about that too" because that's a matter I know nothing about - and obviously if a payment were non-taxable anyway, further documentation about that payment wouldn't make any difference.

Gengulphus

[Allitnil]

Let me add a follow up question. In very broad terms, assume child gets approximately ...

1. £100 per month from me and Mrs Newroad
2. £50 a month from one set of grandparents
3. £1000 once a year from the other set of grandparents

(1) and (2) are from UK residents, but (3) is from offshore - and not a jurisdiction where II will allow direct contributions (for fear of money laundering etc - though very much a generally law abiding first world country, not a tax haven). Hence (3) comes through our bank accounts before going to II.

Carrying on from Allitnil's idea, do you think it would be reasonable to cover that explicitly in any "memorandum" making it clear that such funds are simply "passing through" the account from family - and are not actually a personal gift from Mrs Newroad and I? And would it likely make any difference to the view re inheritance tax?

(1) & (2) - there is a good chance that these gifts might come under the IHT exemption for gifts that form part of normal expenditure from your income. For this to apply the gifts must come from income and your remaining income must be at least sufficient to maintain your normal standard of living. This is a very useful exemption since it is in addition to the other available ones and limited by only the amount of surplus income you have.

See https://www.gov.uk/inheritance-tax/gifts for an overview of all the available IHT exemptions and https://www.gov.uk/hmrc-internal-manual ... /ihtm14231 for the HMRC manual specifically covering the gifts from surplus income exemption.

nb: you, your wife and each of the grandparents all have the annual £3,000 exemption which would likely cover the monthly gifts anyway if those are the only ones you are making.

(3) - if the grandparents are UK residents for tax purposes then the above exemption might also apply for them. No idea what the situation would be if they weren't UK resident for tax but that's their problem!

Regarding the source of the funds, I think the ideal situation would be if the grandparents could pay into a bank account in the child's name but that might not be practical. Failing that then, as Gengulphus says, the memorandum approach certainly can't hurt and IMHO should suffice. A note from the grandparents would likely carry most weight even if it were just an email saying "Dear Newroad, I've just transferred £1,00 to your bank account as a gift for Newroad Jr. Please pay it into his Junior ISA for me". That way it makes it clear that you were never the beneficial owner of the cash.

[Newroad]

Thanks, Allitnil.

There are a number of bits of useful information in your reply!

Regards, Newroad