Gifting though shared bank accounts

Grumpy_chap

https://forums.moneysavingexpert.com/discussion/comment/82129531#Comment_82129531

I don't think you are quite grasping the point that was being made.

It is not about the banks permitting an action by one of the joint account holders.

Can you withdraw all the money from the accounts today and blow the whole lot on some wildly consumable expenditure that leaves nothing remaining by the tie your parents get the statement without your parents commenting very negatively about spending "their" money?

If you can take all the money and spend it on the most absurdly extravagant holiday, fine dining and such like without any comment from your parents, then the gift is a gift.

If you cannot, then the gift is not a gift and GwR applies - the funds remain in the parents' Estates for IHT purposes.

The future issue around joint accounts and PoA is also one to get correct before the need to use PoA has arisen. It does not seem as though you are well protected in this case either.

Keep_pedalling

You drawing money from the accounts really complicates things for the executors of your parent’s estates, especially if that is not you. These withdrawals are in effect gifts so need recording as such for the next 7 years. It is far cleaner if they gift from their own accounts.

Dead_keen

This all gets very complicated very quickly.

As you have heard, income tax and IHT are different taxes with different rules.

If your parents gave you the beneficial interest in one-third of the money in a joint account, lucky you. And as you have been lucky then you are taxed on your share of the interest (assuming you are aged over 18 in England, or married or over 16 in Scotland).

IHT has these rules designed to stop people trying to do funny things to get around paying tax. One of these is where the money is not beneficially owned but you have a "general power" to dispose of the property. A joint bank account may be an example of this (but it depends on the terms of the bank account). But it can include, for example, some types of US pension. HMRC say more about it here. So even if a parent gives away some of their money, if there is a general power then IHT pretends it is still the parent's. This may well be different on a bank account by bank account basis (e.g. a current account will take instructions from all three separately, another requires all three to sign, another only allows the first named person to sign).

If, for example, some money is then taken out of the joint bank account and put into an ISA (which must be a sole account) for the OP, the date that happens is when the PET happens and the seven year clock starts ticking.

Then there are the gift with reservation rules that also pretend that the gifted things is still in the estate of the giver for IHT purposes. A classic example is a parent giving their kid a holiday home that the parent continues to use without paying full market rent. Another example is the transfer of the beneficial interest in money to a joint bank account. In fact, it is such a good example that HMRC mention it here. Again, the seven year clock starts ticking when there is no longer a GWR (rather than when the beneficial interest was originally transferred).

On the POA point, if you are not using it and your parents both have capacity it's a non-issue. If they were to lose capacity, it might all be a dog's breakfast because you might well have a different interest compared to the donor's. So it would be worth making sure things are sorted properly by then.

Musicfloyd

https://forums.moneysavingexpert.com/discussion/comment/82129567#Comment_82129567

No, other than paying income tax on interest, I've not paid into the accounts. They're essentially lump sums that we lock into fixed rate accounts/bonds annually. I'm unclear whether the withdrawals that I've made for ISAs are classed as withdrawals of a joint account holder or a gift.

Keep_pedalling

Any lump sums transferred from the joint accounts to your sole accounts is a gift and is subject to the 7 year rule.

Musicfloyd

https://forums.moneysavingexpert.com/discussion/comment/82129646#Comment_82129646

Thanks for setting this out. As it stands the bank accounts, which are either held 3 ways between myself and both parents or myself and 1 of my parents, permit withdrawals from any one of the account holders so, in that sense, I withdraw any amount from any of the accounts, subject to penalties. In terms of interest accrued from these accounts, whilst the tax liabilities associated with the interest have been spread evenly across all account holders, the money itself has either accrued to increase the invested sums or been paid into ISAs. In short, all of this advise is prompting me towards a conversation with my parents around some professional estates planning advice.

Musicfloyd

https://forums.moneysavingexpert.com/discussion/comment/82129596#Comment_82129596

Ok I get that, albeit without something that explicitly sets out my given right to blow all the money in the accounts, it's difficult to conceive how the law would interpret this. I assume I could get my parents to make a note to this effect, but acknowledge that clean demarcation of money into separate accounts looks easier and less contestable.

poseidon1

OP for clarity and the information for others, there is specific HMRC guidance on how persons added to joint accounts are treated for IHT purposes - see below

https://www.gov.uk/hmrc-internal-manuals/inheritance-tax-manual/ihtm15060

In summary at the point of adding you to the account no gift to you occured, and that is regardless of what your parents' witnessed letter may have stated to the contrary.

In this situation a gift only occurs when the non contributory third party withdraws money from the account for their sole benefit.

In your case you say you have been funding your own ISAs from your parents money. Therefore each time you took a withdrawal for that purpose, your parents made a 50:50 potentially exempt transfer in your favour. Monies ' gifted' to you in this way only become wholly exempt for IHT purposes after your parents have survived the full 7 years after each isa funding excercise.

Accordingly you must maintain accruate chronological record of your ISA funding from their account, to determine at what point you have achieved exempt gifts from them in your favour.

You say this all commenced several years ago, so there maybe a few more years yet to elaspe before your intial isa funded by them becomes exempt.

If one or other parent dies before the 7 years are up, all that happens is 50% of what you took for isa funding purposes is deemed to have reduce that parent's nil rate band at death, so no actual IHT exposure at that point unless the cumulative gift exceeded £325k.

Finally, I assume you are funding ISA contributions early each tax year in April for optimum financial benefit thereby setting the clock running for the 7 year survival requirement thereafter.

Musicfloyd

https://forums.moneysavingexpert.com/discussion/comment/82130452#Comment_82130452

Thank you - that is super clear and sets out where I think we need to go on this next on this.

ElectricBeagle

https://forums.moneysavingexpert.com/discussion/comment/82130107#Comment_82130107

Good morning Keep_pedalling. Always good to hear your thoughts. .

In relation to the above statement, I clearly understand the sum is a gift and subject to the 7 year tax rule. I was wondering though, would it make any difference to HMRC, if you could demonstrate that the sum was used to benefit or on behalf of the person who gifted it. examples being… they are the named owner of their car that you are driving for them and you have to buy a ticket on Euro Tunnel to drive their car to collect them at a airport where they fly too. Would that £500 be seen as a gift or their money used for them? They pay you £3000 into your bank account and you convert that to Euros at a reasonable rate (not a high street bank rate) and then redistribute those Euros back onto a Wise card in their name. The obvious question here being “why don’t they just do that themselves?!!” Well if they lack mental capacity or don’t understand how to and such things. My point being here is a paper trail that shows money left their sole bank account, it was converted for them and returned to a different sole bank account only in their name but in euros and there was indisputable evidence, no matter how unnecessarily complex the reasoning be, would that be reasonable proof the money was not a gift?

I do realise that sounds obsured but sometimes you have to do things for people who lack capacity or the card holder must be present and have the card they made the purchase with and that’s not always possible.