Whose gift is it anyway?

aroominyork

If parents make a gift of money to a child, is it demeed to have come solely from the parent whose bank account the money is transferred from (thinking of things like seven years survival for IHT)? If you want it deemed 50/50 from each parent, is it necessary that it either comes from a joint account or that half is transferred by each parent? Thank you.

Keep_pedalling

A gift coming from a sole account will be seen as a gift from that parent alone, so yes better it comes from a joint account or as separate gifts from sole accounts.

etienneg

https://forums.moneysavingexpert.com/discussion/comment/81859728#Comment_81859728

I'm interested in this reply. I'm not trying to say it's wrong, and certainly not being rude, but is this your opinion or is it founded on fact? If the latter, could you quote a source, please?

How does the recipient know the money is from a joint account? When I transfer money from our joint account to one of my, or my wife's, sole accounts, the bank statement of the receiving account shows it as coming from me, not from both our names. Bank statements don't quote the source account sort code and account number.

Brie

https://forums.moneysavingexpert.com/discussion/comment/81859779#Comment_81859779

I found this - Does the seven-year rule apply to jointly gifted assets? - Investors' Chronicle

Basically - as I understand it - HMRC will assume money from an account is a gift from that account holder and if the account is joint it will assume it is a 50/50 split unless all the money in the account is funded by one person or if there is some document to say it is from one or the other or split in a different way.

Given that we're talking about IHT the issue is with the estate not with the recipient. If the recipient is concerned they could ask or might be told in a birthday card, email or whatever.

Keep_pedalling

Cash held in a sole account is an asset of the HMRC treat it as such for income tax and inheritance tax so any transfers from that account will be treated as a gift from the account holder.

aroominyork

https://forums.moneysavingexpert.com/discussion/comment/81860085#Comment_81860085

Brie, could you kindly post an unpaywalled cut & paste of that article? it looks very helpful.

Dead_keen

https://forums.moneysavingexpert.com/discussion/6652730/whose-gift-is-it-anyway

It's a question of fact and you'd need to know the full circumstances. If you want it to be a particular way, you set up the circumstances to support that and make sure your executors have the evidence.

Let's say mum is travelling and wants to give £10,000 to son. She is having problems with wifi, so asks step-dad to pay it on her behalf and she'll reimburse him. So step dad:

1. Pays from his sole account: It's a gift from mum
2. Pays from their joint account: It's a gift from mum

If the executors know nothing about this then where the money comes from might be a starting point. But making sure you keep a note where you are executors can find it will make the facts clear. For example an email along the lines of: "Hey step-son, it looks like I've just given you £10,000 but it's from your mum - she's out of wifi range but says 'make sure you choose a blue one! xx".

If it is really important (e.g. large amount of IHT at stake), don't use a joint account - make the gift from a sole account or two sole accounts to be clear.

Brie

https://forums.moneysavingexpert.com/discussion/comment/81860191#Comment_81860191

Odd - it doesn't go to a paywall unless I click on that link! most relevant is the final paragraph

But I obviously was looking at another article as well that I didn't link….

The gift of cash to a grandchild is reflected in the principles of IHT through the concept of a transfer of value. A transfer of value, put simply, is a disposition made by a person as a result of which the value of their estate has decreased.

The starting point therefore is to determine the amount of the property which would be reflected in the donor’s estate before the transfer, and the loss to that estate after the transfer. The loss to the estate is the value of the gift.

If there has been a gift of cash, the value transferred is easy to determine, but in the case of a joint bank account, applying the IHT provisions to determine the value transferred by each party is more difficult. How do you determine what proportion of the joint account each party is beneficially entitled to, and therefore how much of that joint account forms part of their estate from which the loss of value occurred?

Joint property is a common term for arrangements under which beneficial entitlement to assets is shared between two or more people. Usually, the assets will be held in the joint names of these people, for example a joint bank account or a jointly owned home. The beneficial entitlement to a house may sometimes be defined as a specific percentage in the deeds, but the beneficial entitlement of one of the holders of a joint bank account is rarely defined in the same way.

It may be reasonable to assume that the beneficial entitlement to a joint bank account is split equally between the account holders, but this is not strictly the case. HM Revenue & Custom's (HMRC's) guidance states that each holder of a joint account is normally regarded as beneficially entitled to the proportion of the account which is attributable to their contributions to it. This is the case even where both bank account holders have complete access to withdraw all the funds. Therefore, if one party contributed all the funds, the whole balance of the account is included in their estate, and consequently none of the balance is included in the estate of the other joint holder.

Withdrawals made by person A from the funds provided by person B could therefore be treated as lifetime transfers. Where joint accounts are held by spouses or civil partners, this is usually of no consequence as transfers between spouses or civil partners are generally specifically exempt from IHT. However, where a transfer of value occurs and no exemption is available that transfer may become a chargeable transfer, for example if the donor does not survive seven years from the date of the gift. The loss in value of the estate of each joint bank account holder may then become relevant.

Therefore, in answer to the original question, how the IHT on a joint gift of cash is accounted for, depends on the beneficial entitlement of either party to the funds, based on how much either party contributed to the account.

At this point, it is worth stating that a gift using the annual exemption of £3,000, the small gifts exemption of £250, or gifts in anticipation of marriage or civil partnership allowance of up to £5,000 per child or £2,500 per grandchild, would all be exempt. Furthermore, gifts representing normal expenditure out of income may also be immediately exempt, and where a gift qualifies for this exemption, there is no monetary limit on it.

In calculating the IHT charge on death, the nil rate band amount (currently £325,000) is set against chargeable lifetime gifts in priority to the assets comprised in the deceased’s estate, and in priority order against the earliest gift first. Therefore, if any part of the gift is not exempt, it may be within the nil rate band so not be subject to an IHT charge.

HMRC’s internal guidance (IHTM15042) goes on to say that the true legal position in establishing a beneficial share of a joint bank account based on contributions to the account is far from clear, and that officers should avoid enquiring into the split in ownership unless the amount of tax at stake is substantial. This highlights how complicated the position can be.

If the gift is substantial, it would be sensible to record that a gift is being made and the value of it, and to make clear the amount being gifted by each of the donors. This is to provide reasonable evidence to help ease future complications in determining the IHT position should either donor not survive for seven years.

sheramber

https://forums.moneysavingexpert.com/discussion/comment/81859779#Comment_81859779

The recipient does not need to know.

It is HMRC who are interested in what account it came from if the donor’s estate is liable for Inheritance Tax.

If the estate is not liable for IHT HMRC do not care.

aroominyork

Thank you, Brie. You highlighted: "If the gift is substantial, it would be sensible to record that a gift is being made and the value of it, and to make clear the amount being gifted by each of the donors. This is to provide reasonable evidence to help ease future complications in determining the IHT position should either donor not survive for seven years." So you can presumably have a gift from a joint account deemed 50/50, and if one spouse does not survive seven years, and their whole estate passes to the surviving spouse (who does survive seven years), then IHT on half the gift may be due on the second spouse's death. We are both in our 60s and thinking of gifting some cash to our children, and I am preparing for a difficult discussion with OH about whether the gift should be made from the one of us with better health.

poseidon1

https://forums.moneysavingexpert.com/discussion/comment/81860407#Comment_81860407

Maybe a difficult conversation, but clearly a prudent one if you are trying to conduct effective estate planning.