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  • FIRST POST
    • happyhero
    • By happyhero 20th Mar 17, 9:49 AM
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    happyhero
    Joint accounts, when is money in Gifting, need advice please
    • #1
    • 20th Mar 17, 9:49 AM
    Joint accounts, when is money in Gifting, need advice please 20th Mar 17 at 9:49 AM
    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
Page 1
    • Keep pedalling
    • By Keep pedalling 20th Mar 17, 10:12 AM
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    Keep pedalling
    • #2
    • 20th Mar 17, 10:12 AM
    • #2
    • 20th Mar 17, 10:12 AM
    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?
    Last edited by Keep pedalling; 20-03-2017 at 10:17 AM.
    • Linton
    • By Linton 20th Mar 17, 10:20 AM
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    Linton
    • #3
    • 20th Mar 17, 10:20 AM
    • #3
    • 20th Mar 17, 10:20 AM
    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.
    • happyhero
    • By happyhero 20th Mar 17, 1:52 PM
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    happyhero
    • #4
    • 20th Mar 17, 1:52 PM
    • #4
    • 20th Mar 17, 1:52 PM
    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?
    Originally posted by Keep pedalling
    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 mention

    Anything transfered to his wife has has no tax implications.
    Originally posted by Keep pedalling
    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.
    • MichelleUK
    • By MichelleUK 20th Mar 17, 2:39 PM
    • 280 Posts
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    MichelleUK
    • #5
    • 20th Mar 17, 2:39 PM
    • #5
    • 20th Mar 17, 2:39 PM
    This might help you:

    https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/517451/IHT404.pdf
    • xylophone
    • By xylophone 20th Mar 17, 2:59 PM
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    xylophone
    • #6
    • 20th Mar 17, 2:59 PM
    • #6
    • 20th Mar 17, 2:59 PM
    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/
    • happyhero
    • By happyhero 21st Mar 17, 10:37 AM
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    happyhero
    • #7
    • 21st Mar 17, 10:37 AM
    • #7
    • 21st Mar 17, 10:37 AM
    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.
    • Eco Miser
    • By Eco Miser 21st Mar 17, 11:02 AM
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    Eco Miser
    • #8
    • 21st Mar 17, 11:02 AM
    • #8
    • 21st Mar 17, 11:02 AM
    “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?
    Originally posted by happyhero
    1. 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.
    2. They have to have millions of surplus income each year.
    3. If they have that much income, they will already have paid tax on it
    Last edited by Eco Miser; 21-03-2017 at 12:11 PM. Reason: Specified "Cash" gifts
    Eco Miser
    Saving money for well over half a century
    • xylophone
    • By xylophone 21st Mar 17, 11:14 AM
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    xylophone
    • #9
    • 21st Mar 17, 11:14 AM
    • #9
    • 21st Mar 17, 11:14 AM
    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.........
    • Linton
    • By Linton 21st Mar 17, 11:27 AM
    • 7,978 Posts
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    Linton
    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?

    .....
    Originally posted by happyhero
    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.
    • xylophone
    • By xylophone 21st Mar 17, 11:31 AM
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    xylophone
    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.
    • dales1
    • By dales1 21st Mar 17, 11:42 AM
    • 19 Posts
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    dales1
    Yes, that's so.

    So, to make life easier for my executor, I maintain my records of gifts, income and expenditure on form IHT 403 (available on HMRC website.

    Dales.
    • Linton
    • By Linton 21st Mar 17, 12:10 PM
    • 7,978 Posts
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    Linton
    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.
    Originally posted by xylophone
    Yes. Some more detail from experience....

    "regular" isnt regarded as something to be checked mathematically. Perhaps "customary" would be a clearer word. Also the income over expenditure test can be spread over several years. It isnt annually. In general the conditions are not well defined, but it seems to be the case that as long as you appear to be behaving reasonably HMRC wont object.
    • Eco Miser
    • By Eco Miser 21st Mar 17, 12:13 PM
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    Eco Miser
    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....
    Originally posted by xylophone
    OK, I've amended my post for the benefit of any future readers.
    Eco Miser
    Saving money for well over half a century
    • happyhero
    • By happyhero 21st Mar 17, 2:33 PM
    • 1,089 Posts
    • 54 Thanks
    happyhero
    Thank you all of you for your help but what shall I do?

    Shall I just take the profits through the joint account as we have been doing but now with no concern for the £3000 annual limit taking these rules instead to apply for our situation?

    Also considering how we are doing this, i.e. selling part of the capital to get the pot back to its original figure and taking the growth as profits, can this be acceptable under these rules; its not effecting my Stepfathers standard of living and is his choice to do this?

    As Linton put it, HMRC wont object if we appear to behave reasonably; is selling capital but only for the purpose of reducing the pot to its original size an acceptable method???
    • dales1
    • By dales1 21st Mar 17, 3:45 PM
    • 19 Posts
    • 14 Thanks
    dales1
    Form IHT 403 will have to be filled out sooner or later.
    So why not take a look at it now, to get some idea of how HMRC views things.

    I would imagine that selling capital which has arisen from dividend income in ACC units would be validly treated as income.
    But selling capital arising from capital growth, I would guess, would not be capable of treating as income. You would have to use the £3,000 anuual exemption in order to distribute these funds.
    Last edited by dales1; 21-03-2017 at 3:47 PM.
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