inheritance tax question

misery-able

My Mum and I have a couple of joint accounts at the Bank in case anything happens to her, and various sole savings accounts, bonds and isa's. It came to light last night that she had thought her isa's were protected against tax and was appalled that in the event of her death all these pots of money would be eroded substantially by tax. I'm fairly sure the joint accounts wont be touched so perhaps should be talking her to about moving some of the funds, or am I missing something, when you fill out forms for probate (hopefully not for a long time yet) wont you have to declare bank accounts. Its probably a silly question so apologies in advance for that but assistance to put my mind at rest would be appreciated. To be honest I hope I see her enjoy herself and if she spends it all - great, but don't want her hard work all to go to the treasury.

milla

What happens if I die?

If you die the tax-free benefits, which apply to your ISA, stop.

Subsequently your personal representative must close the account.

On closing, the balance in the account will be paid-out with interest up to the date of death, tax-free and from this time until closure, with tax deducted.

Therefore tax is only paid on any interest accrued AFTER the date of death .

Willman_Rodders

Hi misery-able,

Inheritance tax is a tax on a person's wealth at the time of their death. It applies where the size of their estate is greater than £300,000 (tax year 2007-8). Simplistically, to determine the size of an estate you add together all their solely owned assets, and 50% of their jointly owned assets. So, as an example lets suppose you mum has the following ...

£275,000 House (held in sole name)
£ 25,000 Savings in taxable investments held in her sole name
£ 20,000 Savings in tax free investments (e.g. ISAs) in her sole name
£ 20,000 Savings in joint accounts

then her estate would be valued at (£275,000 + 25,000 + 20,000 + 10,000 £330,000. The first £300,000 is her personal allowance (and IHT exempt) so the IHT tax due is...

(330,000 - 300,000) x 40 /100 = £12,000

Exemptions and allowances do exist.

peter999

misery-able wrote: »

My Mum and I have a couple of joint accounts

Yes, but who's money is in the accounts ??

Just because you're jointly named on account doesn't necessarily make you owner of the money. Obviously you can access the money, but only you & your mum really know who's money that is.

Just putting money into a joint account doesn't make it exempt.

peter999

Alfie_E

misery-able wrote: »

I'm fairly sure the joint accounts wont be touched so perhaps should be talking her to about moving some of the funds, or am I missing something, when you fill out forms for probate (hopefully not for a long time yet) wont you have to declare bank accounts.

I’m going to expand a little on what others have said, because I can understand what might cause confusion.

You are probably thinking of the following situation. A husband and wife have a joint account. One of them dies. The remaining partner immediately becomes the sole owner of the account, with no need for probate, and no inheritance tax to pay. There are two separate parts to this.

1. Anything jointly owned remains jointly owned by those surviving the deceased. If there’s only one person left, that person gains sole ownership. This happens outside of probate.
2. Transfers between husband and wife (or civil partners) are exempt from inheritance tax.

So, in your case, point one would apply, but point two would not. As peter999 says, for your joint accounts, you have to work out who “owned” what share of the money, when totalling up for inheritance tax. Strictly speaking, the criterion isn’t who owned the money, but who contributed what money to the account. The converse can also happen. If a husband and wife have separate bank accounts, the husband dies and leaves this money to his wife, it will need to pass under probate, but it will not be included when calculating inheritance tax.

misery-able

Thanks for all your replies so far, I was added to Mums accounts thus 100% of the money is hers, so if I am now correct, all of this would be taxable in the event of her death. Other than the £3000 per annum gift allowance then, there doesn't seem to be much you can do to preserve these assets - is that the case? Michelle - she might as well enjoy every penny and live!!!

CLAPTON

well she can give money away to you and if she lives 7 years then there is no IHT payable on those gifts.

milla

Hi quill

I'm sorry but I don't read it like that ......



What happens if I die?

If you die, the tax-free benefits which apply to your ISA will stop from the date of your death. Your personal representatives must close your account and the balance will be paid to your estate together with interest earned up to the date of closure. Tax will have to be paid on any interest earned from the date of death.

http://www.scottishbldgsoc.co.uk/view_Subproduct.asp?fld_product_id=4&fld_sub_product_id=24

I read that the ISA is closed IMMEDIATELY on date of death( and from thereon the interest accrued becomes taxable ), that the proceeds don't belong to the beneficiary until probate has been dealt with and until that time it is all part of the estate and that the tax liablity (of the deceased )will be dealt with during probate .