Gifting though shared bank accounts

Musicfloyd

Several years ago, my parents said that they were adding me to their shared bank accounts. Their motivations for this at the time were two-fold, one consideration was around providing a larger FSCS compensation coverage (which at the time was £75k per account holder) and the second was as part of estate planning, where they effectively gifted me a one-third share of the money in those accounts. At the time, they made a note of this intention and it was witnessed by a neighbour. I'm keen to understand whether this is legal robust in terms of 1) an estates planning approach and 2) if not, what additional measures should they take? Thanks

Keep_pedalling

Afraid this does not work as far as estate planning is concerned as they still have full access to to the money so you have been gifted nothing. You say that they were adding you to their accounts, did they actually follow through and do it?

Grumpy_chap

Several years ago, my parents said that they were adding me to their shared bank accounts. There motivations for this at the time were two-fold, one consideration was around providing a larger FSCS compensation coverage (which at the time was £75k per account holder) and the second was as part of estate planning, where they effectively gifted me a one-third share of the money in those accounts. At the time, they made a note of this intention and it was witnessed by a neighbour. I'm keen to understand whether this is legal robust in terms of 1) an estates planning approach and 2) if not, what additional measures should they take? Thanks

Yes, this is legal but it will most likely make no difference in estate planning terms. I say "likely make no difference" because the detail matters.

Say there was £90k in the bank account and that was in the names of your parents only. At death, they would be deemed to have £45k each. If that is changed so your parents plus yourself, at death of one it would be deemed to be £30k each.

Now, if you had your name on the account and could have immediately drawn your £30k (or, even, all the money) and spent it on whatever you wanted, that would have been a true gift.

If, however (and I assume more likely), you had your name on the account for administration purposes only but you were not able to simply draw what you wanted for when and whatever, then that would be a Gift with Reservation (GwR) and make no difference to the assessment for IHT as deemed to still be in your parents' Estates.

There are also other complications that can arise with such arrangements:

- in the event of your claiming any means-tested benefits, you would be deemed to have the capital proportion of the bank account

- you will be deemed to have some of the interest accrued so affecting your income tax liability and HICBIC etc. I assume you declared any such interest through tax returns. Your income tax rate may be higher or lower than your parents.

- in the event of your relationship breakdown, an ex-partner could claim a proportion of the value of the bank account balance.

Now, as to what action to take. Well, the first thing is to assess whether your parents are likely to be liable to IHT. If they are home owners and leave the house to their children, then they probably have an allowance of around £1m before IHT becomes an issue. Even if your parents are likely to be liable for IHT now, will they still be liable by the time of death after spending whatever they need to spend to enjoy their later years? Good holidays or care fees.

Musicfloyd

https://forums.moneysavingexpert.com/discussion/comment/82129347#Comment_82129347

Thanks. Yes they did add me several years ago and I do most of the engagement with the banks now in terms when we move the money around etc for better interest rates. The only time we've made withdrawals from these accounts has been to fund our respective ISA allowances each year.

Keep_pedalling

A couple of other points, although there are three names on the accounts only two people have contributed anything to those accounts so for IHT purposes on the second parent’s death the whole account forms part of their estate.

As far as I know there are no joint savings accounts that allow the addition of a third account holder which indicates that either they did not follow through with it, or are holding large amounts of cash in current accounts earning very little in the way of interest.

Musicfloyd

Thanks, this is helpful (if also unhelpful, in terms of preferred outcome). I'm a higher rate tax payer through my employment, so all of my own savings (outside of ISAs and SIPP) are taxed at 40%. I'm also taxed for a 3rd of the value of the money held jointly by my parents and have full access to the money, albeit I've only used it to fund ISAs. On that basis, my bone of contention is this, how can I be taxed on it as my income and then also be taxed on it again for inheritance tax purposes?

Grumpy_chap

https://forums.moneysavingexpert.com/discussion/comment/82129378#Comment_82129378

Because that's how the rules work.

The key thing in IHT terms here is can you draw any of the money at any time for any purpose? If so, that was a genuine gift and outside of your parents' Estates

If not, it is GwR and still within your parents' Estates for IHT

Do you have PoA? You need to be careful with these arrangements and potential conflict of interest if you ever need to act as your parents' attorney.

It is not uncommon to see me threads in these boards that create an increase in taxation liability and also fail with regard to IHT minimisation.

Keep_pedalling

https://forums.moneysavingexpert.com/discussion/comment/82129378#Comment_82129378

The problem is, as with a lot of DIY IHT planning, is that the plan is seriously flawed especially as you are a HTR payer. This is a very unusual approach and if your parent’s net worth is under £1M is probably totally pointless.

I would suggest that they get your name off these accounts ASAP. If they are in IHT territory then it would be better for them to make one off gifts.

Musicfloyd

https://forums.moneysavingexpert.com/discussion/comment/82129447#Comment_82129447

Thanks, that essentially reaffirms where I thought things stood but helpful in terms of picking up a conversation and actions with them. These are genuine 1 year bonds and fixed rate term accounts with high street banks and building societies that provide for 3 account holders. Their estate is over £1m and, TBH, my reason for raising this post was my own concerns that I'm effectively being taxed on interest from these accounts with no IHT protection.

Musicfloyd

Thanks. It is within my gift to withdraw money from the accounts at any time, in fact for most I've actually been the one to open the account. Would it help if I made some withdrawals from the account - which I have done for things like ISAs? I do indeed have PoA arrangement over both of my parents, though not invoked, but appreciate the conflict you are flagging.

sheramber

Do you contribute to these accounts or are your withdrawals really gifts?

Would they cone under the 7 year rule for gifts?