Joint Account Interest

theGrinch

Is the interest/tax split evenly on such accounts or can you nominate the split?

Case in hand, is one person owns the funds and the second named holder (son) is on account just in case funds need to be accessed but main account holder isn't available.

colsten

Interest is split 50:50 regardless of anything.

LXdaddy

Sorry to disagree with the very knowledgeable colsten.


You can make a declaration on joint accounts to have the interest treated in a different proportion (certainly in the case of a couple)


I was corrected on this subject in a recent post.


But the default is 50:50

colsten

LXdaddy wrote: »

You can make a declaration on joint accounts to have the interest treated in a different proportion (certainly in the case of a couple)

This is news to me but I am always willing to learn. How do you make the declaration you mention?

LXdaddy

colsten wrote: »

This is news to me but I am always willing to learn. How do you make the declaration you mention?

Back to the source I see that it does mainly relate to spouses or civil partners
http://www.hmrc.gov.uk/manuals/saimmanual/saim2420.htm

Where interest arises on an account held in the joint names of spouses or civil partners, each will normally be taxable on half of the interest, under ITA07/S836. Where, however, their beneficial entitlement to interest (or any other income from a jointly owned asset) is not actually 50:50, they may elect to be taxed on their actual entitlement.

The second para discusses the case of joint ownership by persons who are not spouses or civil partners- and this also suggests it is possible to be other than 50:50

colsten

So what precisely, in layman's terms, would the circumstances and/or actions have to be to transfer all of the interest to the non-tax paying / lower-tax paying spouse? I'm not trying to be difficult, just want to understand what we'd need to do to squeeze out a few more pounds.

Eco_Miser

colsten wrote: »

So what precisely, in layman's terms, would the circumstances and/or actions have to be to transfer all of the interest to the non-tax paying / lower-tax paying spouse? I'm not trying to be difficult, just want to understand what we'd need to do to squeeze out a few more pounds.

It seems to me (from the link posted by LXdaddy) you'd have to convince the taxman that the lower-taxed spouse is entitled to all of the principal, and therefore the interest on it, which would be difficult if the higher-taxed spouse actually earned it.

In the case suggested by the OP however, it clearly all belongs to the parent, rather than half to the son, although they could split it 50:50 if that were more beneficial.

colsten

Without looking into the details of the marriage allowance legislation: how exactly would you apply that legislation to the interest earned in a joint account, and how exactly would the legislation modify the 50:50 split of interest in joint accounts?

LXdaddy

colsten wrote: »

So what precisely, in layman's terms, would the circumstances and/or actions have to be to transfer all of the interest to the non-tax paying / lower-tax paying spouse? I'm not trying to be difficult, just want to understand what we'd need to do to squeeze out a few more pounds.

Don't for a moment confuse me with someone who knows about this subject


But if you take a look at http://www.hmrc.gov.uk/manuals/tsemmanual/Index.htm and start reading at TSEM9000 it looks like spouses can make a "Form 17" declaration about the split of beneficial ownership in an asset. I've not found Form 17 yet


For the OP's situation the rules would seem to be fairly clear that when the joint owners are NOT spouses or civil partners their respective ownership determines the split of benefit. In the quoted condition (father owns the funds, son has access for making withdrawals in exceptional circumstances) then 100% of interest belongs to the father.

colsten

Form 17 is here https://public-online.hmrc.gov.uk/lc/content/xfaforms/profiles/forms.html?contentRoot=repository:///Applications/SpecPersTax_iForms/1.0/17&template=17.xdp

It looks to me that it is all about property, and income from property, so a bit of a red herring.

ITA07/S836 does say that interest from joint accounts might be split other than 50:50 if the joint account holders are married/civil partners but it seems hugely complicated, and down to the tax inspector whether it would get accepted.

xylophone

http://www.hmrc.gov.uk/manuals/saimmanual/saim2420.htm

"Where a savings account or other source of interest is owned jointly by persons who are not spouses or civil partners, they will be taxed on the interest to which they are actually entitled. In most cases, the practical result is that interest will be split equally between the account-holders. This is because the funds held in bank, building society or similar accounts in joint names are usually intended by the account holders to be held in joint ownership; irrespective of how much each has contributed. This means that each account holder is entitled jointly to all of the funds in the account, and interest is paid to the account holders jointly. Where there is no, or insufficient evidence, to show that the account holders intended the funds in the account to be held in joint ownership or in specified shares, the parties will be taxed according to the share of funds that each has respectively contributed."

A letter to HMRC should suffice?