Joint accounts, when is money in Gifting, need advice please
happyhero
Posts: 1,276 Forumite
Can anybody enlighten me with this problem please?
I have a joint bank account with my 90 year old stepfather. We set it up especially for managing his investment dividends and profits after he decided he could no longer manage them, (he has dementia). He decided that the dividends that are paid out he wants to keep and use the money, so I always transfer them from our joint account to his joint account with my Mother to use for whatever they choose, bills etc. But he decided that I should draw out any profits and split them with him.
This has resulted in anywhere from £3000 to £9000 in profits coming into this joint account we have from the investment broker account.
So for example taking the higher figure of £9000, if this came into our joint account over the year, I would transfer £4500 to his joint account with my Mother but the same amount to another account I have, but only in my name in the same bank which I would then use for bills etc.(my normal bank account).
But the amount you can gift is £3000 per year and I am aware of the 7 year rule with gifting but he is 90 and not in the best of health so I cannot rely on the 7 years and feel I must concentrate on the yearly £3000 rule as my limit.
So I am confused here, I read somewhere that the money in a joint account is equally owned so if he effectively pays in £9000 from his broker, is £4500 deemed to be mine and so I can move it to another account without using any of the £3000 annual gift or does the fact he paid £9000 into the account mean he has already given me £4500 before I even move it out?
Hopefully you get my meaning here, to elaborate if a couple have a joint account and pay all their bills all year which can amount to thousands, and way over the £3000 limit are they gifting to each other every time one of them has a significant sum paid in?
Help please
I have a joint bank account with my 90 year old stepfather. We set it up especially for managing his investment dividends and profits after he decided he could no longer manage them, (he has dementia). He decided that the dividends that are paid out he wants to keep and use the money, so I always transfer them from our joint account to his joint account with my Mother to use for whatever they choose, bills etc. But he decided that I should draw out any profits and split them with him.
This has resulted in anywhere from £3000 to £9000 in profits coming into this joint account we have from the investment broker account.
So for example taking the higher figure of £9000, if this came into our joint account over the year, I would transfer £4500 to his joint account with my Mother but the same amount to another account I have, but only in my name in the same bank which I would then use for bills etc.(my normal bank account).
But the amount you can gift is £3000 per year and I am aware of the 7 year rule with gifting but he is 90 and not in the best of health so I cannot rely on the 7 years and feel I must concentrate on the yearly £3000 rule as my limit.
So I am confused here, I read somewhere that the money in a joint account is equally owned so if he effectively pays in £9000 from his broker, is £4500 deemed to be mine and so I can move it to another account without using any of the £3000 annual gift or does the fact he paid £9000 into the account mean he has already given me £4500 before I even move it out?
Hopefully you get my meaning here, to elaborate if a couple have a joint account and pay all their bills all year which can amount to thousands, and way over the £3000 limit are they gifting to each other every time one of them has a significant sum paid in?
Help please
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Comments
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A bit of a mess I am afraid, he should have gone down the lasting power of attorney route not a bodge with a joint account. If he still has sufficient mental capacity sort that out without delay.
Anything transfered to his wife has has no tax implications.
P..S. Is your mum and step dad's joint estate over £850k?0 -
If he paid for all his ongoing expenditure out of income then the dividends going to you were a gift from income and so not liable to inheritance tax.0
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Keep_pedalling wrote: »A bit of a mess I am afraid, he should have gone down the lasting power of attorney route not a bodge with a joint account. If he still has sufficient mental capacity sort that out without delay.
Anything transfered to his wife has has no tax implications.
P..S. Is your mum and step dad's joint estate over £850k?
Thanks Keep pedalling, we have arranged POA for him and I manage all his affairs although so far it has never actually been asked for. For example within his investment account that is with Hargreaves Lansdown, all we had to do is link accounts. This lets a person you are linked with do a hell of a lot, not 100% but is good for trading stocks and funds etc for him. All I have to do is log into my account and then select his linked account to access it all, this is their accepted method.
Yes my parents estate will be over this figure as their house has risen above all expectations, but we have made arrangements with much of this through a solicitor and a trust etc.
But my question was more to do with me taking half of my stepfathers profits and the fact we were doing this via a joint account. I know about the £3000 yearly limit for gifting but I am not sure how it plays out for a joint account when my Stepfather may have £9000 profit from his investments paid into our joint account in any year and the fact that on joint accounts they say it is deemed that each person owns whats in the account equally.
If we do this every year is it gifting when I draw it out or is it mine anyway from the second its paid in due to joint account rules?
The reason we chose this method is because my Stepfather realised his mental capacity was not getting any better we felt it made it easy for me to control his dividend and profit payments, and divert them for him to the place he wanted, including half the profits to me, so it works well for that purpose.
You mentionKeep_pedalling wrote: »Anything transfered to his wife has has no tax implications.
and I have utilised this in the past if he had a particularly good year, ie within HL I can divert his profits via my Mum's HL account and then get my part from there so that she gifts me. This is not such big problem although more annoyingly lengthy, because my mother is in good health and is younger at 78.0 -
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These are regular gifts from your stepfather's income?
https://www.warnergoodman.co.uk/for-you/private-client/inheritance-tax-planning/gifts-from-surplus-income-over-expenditure/0 -
These are regular gifts from your stepfather's income?
https://www.warnergoodman.co.uk/for-you/private-client/inheritance-tax-planning/gifts-from-surplus-income-over-expenditure/
Thank you xylophone, I was about to give up on this thread when you sent this amazing link. I cant believe I am reading it right, can this be true that you can gift any amount with no tax implication. I quote from the link
“If these factors can be met then the individual can give away surplus income, without any upper limit.”
I cannot believe I am reading it right, does it not imply that the £3000 limit goes out the window in these circumstances. What’s to stop people passing on millions like this without paying tax?
Someone correct me if I have got this confused.
My questions now would focus on the requirements to do this now, ie can I follow the rules and make this work with my stepfather.
The link says it must be paid out of annual income, not capital but let me explain how we currently work things. Years ago when we discussed this my Stepfather said he was no longer interested in making money he just wanted enough to live comfortably. He said he wanted me to make profits on his money investing it in shares and funds, something we had both been involved in for a while and to take the profits from his investments and put them into my investments or live off it. But the way we did this ignoring the dividends for a moment which all go to him anyway is that we keep the pot size the same so that if the investments grow by say £5000 we then would sell enough to bring the pot back to its original figure and take the £5000 for us to split. This has worked fine except for my concern with the £3000 annual gifting limit. I queried this once with HL and they said it would be ok for my Stepfather to gift the money to my mother who also has a HL account and then let her gift to me, that way the gifting can stay under the £3000 limit most of the time. But this process is lenthy having to transfer money first with HL and then to different bank accounts.
Now looking again at the link would this method not be classed as taking money from the capital despite the fact it is a profit(bearing in mind it says must be taken from annual income)?
Quoting from the link
The key elements of this exemption are as follows:
The gift must be made as part of “normal expenditure”
It must be paid out of annual income (ie not capital)
After taking account of the surplus income gifts, the Donor must be left with enough income to maintain the “usual” standard of living
If these factors can be met then the individual can give away surplus income, without any upper limit.
The question arises as to what is normal expenditure?
Can this be made to work for our situation, ie can normal expenditure play apart, not even sure what they mean by that part?
It almost seems I can grasp something here, is there may be a way of using the rules in my favour, any ideas on this?
Taking the dividends (since they are possibly classed as annual income)would not work as they are no where near as big as the growth in the stocks and funds......there must be away using the information in this link surely.0 -
“If these factors can be met then the individual can give away surplus income, without any upper limit.”
I cannot believe I am reading it right, does it not imply that the £3000 limit goes out the window in these circumstances. What’s to stop people passing on millions like this without paying tax?- Cash gifts are not taxable anyway, except in the last seven years of the donor's life, when they are included in the IHT calculation.
- They have to have millions of surplus income each year.
- If they have that much income, they will already have paid tax on it
Eco Miser
Saving money for well over half a century0 -
Gifts are not taxable anyway,
Not exactly true - supposing the gift were say, an oil painting or a second home or a parcel of shares....
https://www.gov.uk/capital-gains-tax/overview
The donor could be subject to CGT and his estate to IHT on the gift depending on allowances/exemptions/PETS.........0 -
Thank you xylophone, I was about to give up on this thread when you sent this amazing link. I cant believe I am reading it right, can this be true that you can gift any amount with no tax implication. I quote from the link
“If these factors can be met then the individual can give away surplus income, without any upper limit.”
I cannot believe I am reading it right, does it not imply that the £3000 limit goes out the window in these circumstances. What’s to stop people passing on millions like this without paying tax?
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You are reading it right - see Post #3.
If your income exceeds your needs you can do what you like with what's left. Obviously you will need to show that you arent raiding your savings. There are rules requiring regular gifts rather than large one-off payments. But these are imposed lightly - for example there was a case which went to court whereby the deceased had a standard policy of giving away all her unused income at the end of the tax year. The court decided that this satisfied the requirements.
IHT is intended to catch capital. The 7 year rule is intended to stop people avoiding tax by giving away capital shortly before they die.0 -
It seems to me that for IHT purposes, when the IHT account is submitted, the executor of the estate would have to demonstrate that gifts in excess of the allowance were regular and made from surplus income over expenditure.0
This discussion has been closed.
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