Joint Account Interest

bowlhead99

colsten wrote: »

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

Not really. If I own a house it is my property. If I own this Cadbury's Creme Egg it is my property. If I have five pounds in sterling in a bank account it is my property. The former and the latter are more likely to generate income from the property

Without wanting to regurgitate what has been put on other threads (and I might have been one of the people 'correcting' LXdaddy in another thread), basically if you have an account with a spouse or civil partner, everything is assumed to be owned 50:50, and this is different from the approach for people who are not spouses or partners as mentioned by xylophone above. Spouses and civil partners have special rules and HMRC have a variety of examples at the other links provided.

So for example I put £90 in she puts a tenner in but our finances are inextricably linked and gifts between spouses are irrelevant for IHT etc, so the general rule is that if £3 of interest is generated it belongs to both of us straight down the middle.

By contrast if I put £90,000 in a joint bank account or a solicitor's client money account with my mate to buy a house and he puts in £10,000, then it is NOT assumed that £50k of it suddenly belongs to him and that £1500 of the £3000 of interest should go to him and be taxed as his income at a 20% marginal rate instead of my 45% marginal rate. Unless I'm making an explicit gift of £40,000 to him, (which I am quite likely not doing) then our ownership of the property and the income it generates typically belongs to each of us in the proportions of our contributions, unless there is a trust or partnership agreement which says differently. The bank can make us jointly and severally liable if the account goes overdrawn and doesn't care that it was perhaps supposed to be me that makes good 90% of the losses, but that's just bank T&Cs and not tax law.

If it were my wife, it would just be assumed we were sharing everything and gifts between spouses are irrelevant for CGT, IHT etc, thus the 50:50 presumption.

If you want to elect something other than 50:50 for the contents of a joint account with spouse or other property, you can make an election. The election has to be for the income to be treated in line with the actual beneficial ownership and not some other random number. So if I put £90,000 into an account and wife puts £10,000 in, it would be fine for us to decide that I was going to effectively give her a gift up to the amount that gave us a good 'result' from a planning perspective but NOT share all the assets down the middle. We just have to formally document it and notify HMRC for it to have effect.

So for example we could declare the actual beneficial ownership as 60:40 and split our interest income 60:40, because I'd just effectively given her a gift of £30k but did NOT agree to share the whole pot as 50:50 which is what would have been assumed in absence of an election.

But if we both got wiped out in a car accident tomorrow and each of our executors were looking at paperwork, it would be clear that only £60k is mine (not 90 reflecting the initial contribution and not 50 as default for married couples), plus the interest income accrued on that piece, because the beneficial ownership split of 60:40 is what we have both signed off on as being the intention of the parties as to the joint ownership of the 'property' (the pile of cash in a bank vault) in unequal shares. You can't simply declare that for income tax purposes the split is in unequal shares because it's to your advantage, if the beneficial ownership is not actually in unequal shares.

So if you paid in 50:50 and wish your wife to get the interest 1:99, you can only do that by stating that she owns 99 of it, and if she decides to use it to run off with her ex boyfriend, or leave it to a cat's home instead of to you in her will, tough. In such a case you could have achieved the same effect by paying £99 into her sole account and £1 into yours.

As you have probably read on the links or on the online form, the election is enduring until the date your interests in the property change. So if the account is £100k split 60:40 and she takes £10k out of the account next week, is that out of her £40k, leaving £60k for you and only £30k for her? If so, you would need another election to say the share of the ownership of the account is now two thirds/ one third (60:30). Or you might be happy that the £10k she took away was partly her own money and partly a gift from you, so the remaining £90k in the account and future income from it remains at 60:40.

Disclaimer - seek tax advice if you are going to do anything complicated and change the tax treatment from its default. Also make it clear to your financial advisors, heirs or executors what it is that you are doing, if the amounts are material. Doing this sort of thing with a long term fixed term deposit account, or a valuable antique vase, is perhaps much easier to document than if you are dealing with a current account with fees, direct debits, a standing order merry-go-round in and out of other sole and joint accounts.

Also as an aside if you are doing it with a long term fixed deposit account containing £150k: the default accepted position is that you and spouse own it 50:50 and if the bank goes bust you only have £75k each and are covered by FSCS. If you decide instead that you want to declare that she owns 99.33% and you only own 0.67% for beneficial ownership and interest allocation, then your £1k is fully covered by your £75k FSCS protection but her £149k is not covered by hers.

As a final observation, the aforementioned Creme Egg is still my property, but no longer recognisable.

beefturnmail

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?

Complete a statement of trust like the example at the end of this post, and get both parties to sign it (this is all the 'evidence' the taxman needs, and it is not down to them whether it is 'accepted' - they have no choice as the intention is clear from the statement of trust).

Then complete a Form 17: https://www.gov.uk/government/publications/income-tax-declaration-of-beneficial-interests-in-joint-property-and-income-17, and send it off. Think this has to be within a certain time (maybe 30 days) of signing the statement of trust.

Statement of trust (taken from here: http://uktaxplanning.blogspot.co.uk/2011/12/hmrc-change-mind-on-income-shifting.html)

Bank account at ABC Bank Plc (number 01234568)


Mr John X (J) and Mrs Susan X (S) are the joint legal and beneficial owners of the above named account (the account) and, in accordance with the terms and conditions of the operation of the account as set out and varied from time to time by the bank, have equal and several rights over the money in it.


J and S both contribute money to and withdraw money from the account. While recognising this J and S agree that from the date of this agreement unless revoked the money held in the account at any time shall be beneficially owned as follows:

• J 20%
• S 80%

Interest



All interest paid or accrued in respect of money held in the account will be due to J and S in proportion to their respective beneficial ownership as determined by this agreement.




Signature……………………….. Name…………………… Date……………




Signature……………………….. Name…………………… Date……………

theGrinch

I suspected as much

grey_gym_sock

bowlhead99 wrote: »

So if you paid in 50:50 and wish your wife to get the interest 1:99, you can only do that by stating that she owns 99 of it, and if she decides to use it to run off with her ex boyfriend, or leave it to a cat's home instead of to you in her will, tough.

i thought a joint account automatically passed to the surviving account holder(s) when one dies, i.e. wills don't apply to it.

in practice, with any joint account, one account holder can clear out the account and use the money in a way which the other account holder(s) don't approve of. changing the split from 50:50 to 99:1 doesn't really change this.

bowlhead99

Most joint accounts are indeed operated as if the accountholders were joint tenants rather than tenants in common, with the survivor continuing to have exclusive access after the other's untimely demise. The survivor can just wave the death certificate in the bank's face, without waiting for probate, and do whatever they want.

However, while this might be the starting point for the arrangements between the two accountholders and the bank... the ownership of the assets and the income from it, and the position between the two parties and their rights against each other is important to HMRC and the two estates. So, declaring an ownership split that is non- 50:50 in favour of another nominated ownership would be important. HMRC do not care too much when the accountholders are spouses because there are no inheritance tax issues between spouses; with married couples, it's the income tax which is more of interest to the taxman.

There is a variety of case law around the ownership of joint accounts in terms of what was documented, what the intentions of the parties appeared to be, and what was deemed to belong to whom, especially where there's a death and a significant amount of money involved resulting in HMRC wanting to pay more attention.

The fact that one joint account holder is a signatory to the account and can, in practice, draw out all the money, would not mean that for example the person who is 1 in a 1:99 relationship could take all the money on the other's deathbead without any third parties (including HMRC in some circumstances) caring about it.

IANAL etc.