Are Joint Bank Accounts Subject To Inheritance Tax?
Updated: Mar 10
Inheritance Tax is a tax that is levied on the value of an individual's estate when they die. In the UK, Inheritance Tax is payable on estates with a value of more than £325,000. If an individual's estate exceeds this threshold, Inheritance Tax will be payable at a rate of 40% on the excess.
Joint bank accounts are a type of bank account that is owned by two or more individuals. In the UK, joint bank accounts are subject to Inheritance Tax in certain circumstances. Joint bank accounts in the UK may be subject to Inheritance Tax, depending on the type of joint account and the circumstances of the joint owners.
Joint bank accounts with a right of survivorship are treated differently for Inheritance Tax purposes. If a joint bank account has a right of survivorship, the surviving joint owner automatically inherits the entire value of the account on the death of the first joint owner, and the value of the joint bank account is not included in the estate of the first joint owner for Inheritance Tax purposes.
Joint bank accounts with no right of survivorship are treated differently. If a joint bank account has no right of survivorship, the value of the account will be included in the estate of both joint owners for Inheritance Tax purposes.
If an individual leaves their entire estate to their spouse, there will be no Inheritance Tax to pay. This means that if a joint bank account is left to a surviving spouse, the value of the joint bank account will not be subject to Inheritance Tax.
However, if an individual gives away a joint bank account but continues to benefit from the account, this may be considered a gift with reservation of benefit. In this case, the value of the joint bank account will be included in the estate of the individual for Inheritance Tax purposes.
Here's what you need to know about Inheritance Tax and joint bank accounts in the UK:
Joint Bank Accounts Are Considered Part of an Individual's Estate: Joint bank accounts are considered part of an individual's estate for Inheritance Tax purposes. This means that the value of a joint bank account will be included in the value of an individual's estate when calculating Inheritance Tax.
Joint Bank Accounts With A Right Of Survivorship: Joint bank accounts with a right of survivorship are treated differently for Inheritance Tax purposes. If a joint bank account has a right of survivorship, the surviving joint owner automatically inherits the entire value of the account on the death of the first joint owner. The value of the joint bank account is not included in the estate of the first joint owner for Inheritance Tax purposes.
Joint Bank Accounts With No Right Of Survivorship: Joint bank accounts with no right of survivorship are treated differently for Inheritance Tax purposes. If a joint bank account has no right of survivorship, the value of the account will be included in the estate of both joint owners for Inheritance Tax purposes.
Spouse Exemptions: If an individual leaves their entire estate to their spouse, there will be no Inheritance Tax to pay. This means that if a joint bank account is left to a surviving spouse, the value of the joint bank account will not be subject to Inheritance Tax.
Gifts With Reservation Of Benefit: If an individual gives away a joint bank account but continues to benefit from the account, this may be considered a gift with a reservation of benefit. In this case, the value of the joint bank account will be included in the estate of the individual for Inheritance Tax purposes.
How Does Inheritance Work With a Joint Bank Account in the UK?
In the UK, when a joint bank account holder dies, the ownership of the account automatically passes to the surviving account holder(s). This means that the account and its funds become the sole property of the surviving account holder(s) and do not form part of the deceased's estate.
However, if the joint account holders are spouses or civil partners, the account may be treated as forming part of the deceased's estate for inheritance tax purposes. This is because transfers between spouses or civil partners are generally exempt from inheritance tax, but only if the transfer is made outright and not into a joint account.
If there is a dispute over the ownership of the funds in a joint account after one of the account holders has died, it can be resolved through legal action. The court will consider various factors, such as the intention of the account holders when opening the account and the source of the funds in the account, in determining the ownership of the funds.
It's important to note that joint bank accounts can have different terms and conditions depending on the bank or building a society where the account is held. It's advisable to check with the bank or building society for specific details on how inheritance works with a joint bank account.
Is a Joint Bank Account Considered an Inheritance in the UK?
No. In the UK, a joint bank account is not considered an inheritance in the traditional sense. When one of the joint account holders passes away, the ownership of the account and its funds automatically passes to the surviving account holder(s), rather than being distributed as part of the deceased's estate.
However, the value of the joint bank account may be included in the calculation of the deceased's estate for inheritance tax purposes. This means that the value of the account may be subject to inheritance tax if it exceeds the relevant thresholds and exemptions.
It's also important to note that the surviving account holder(s) may choose to distribute the funds from the joint account to the beneficiaries of the deceased's estate, but this is a matter of personal choice and is not required by law. Ultimately, the ownership and distribution of the funds in a joint bank account will depend on the terms and conditions of the specific account and the intentions of the account holders.
Can You Avoid Inheritance Tax With a Joint Account?
Inheritance Tax (IHT) in the UK is a tax that is levied on the estate of a deceased person. If the value of the estate exceeds a certain threshold (currently £325,000), then IHT may be payable at a rate of 40% on the value of the estate above that threshold.
A joint account can be a useful way to manage finances and may provide some benefits in terms of inheritance tax planning, but it is not a guaranteed way to avoid IHT.
If you own a joint account with another person, the account will usually pass to the surviving account holder outside of the deceased person's estate. This means that if one account holder dies, the other account holder will automatically become the sole owner of the account and the funds will not be subject to IHT.
However, this is only true if the joint account is set up as a "joint tenancy." If the joint account is set up as a "tenancy in common," then each account holder owns a share of the account, which would be subject to IHT in the event of their death.
It's also worth noting that while a joint account may be useful for avoiding IHT on the account itself, it may not be the best option for larger estates, as the value of the account will be included in the surviving account holder's estate when they die. Therefore, it's important to seek professional advice to determine the most appropriate way to manage your finances and minimize your tax liability.
Who Pays Inheritance Tax On Joint Assets in the UK?
In the UK, inheritance tax on joint assets such as joint bank accounts, joint property, and joint investments is typically calculated based on the proportion of the asset owned by the deceased person. The surviving owner(s) of the joint asset does not have to pay inheritance tax on the portion of the asset that they already own.
For example, if a married couple owns a house jointly, and one spouse dies, the surviving spouse will inherit the deceased spouse's share of the property without paying inheritance tax on that share. However, if the total value of the deceased spouse's estate, including their share of the joint property, exceeds the inheritance tax threshold, the estate may be subject to inheritance tax.
It's worth noting that joint assets can have different rules and tax implications depending on the nature of the asset and the ownership structure. It's always a good idea to seek professional advice from a solicitor or tax specialist to understand the specific rules and implications that apply to your joint assets.
Conclusion
Joint bank accounts are subject to Inheritance Tax in the UK in certain circumstances. Joint bank accounts with a right of survivorship are treated differently from joint bank accounts with no right of survivorship. Spouse exemptions and gifts with reservation of benefit can also affect whether a joint bank account is subject to Inheritance Tax. It's important to seek professional advice to ensure that your joint bank account is structured in the most tax-efficient manner.