Are Joint Bank Accounts Subject To Inheritance Tax?
- Adil Akhtar
- Feb 1, 2023
- 23 min read
Updated: Jun 10
Understanding Joint Bank Accounts and Inheritance Tax in the UK
So, are joint bank accounts subject to inheritance tax (IHT) in the UK? The short answer is: it depends. If the account is held between spouses or civil partners, it’s usually exempt from IHT due to the spouse exemption. For other joint accounts, like those between parents and children or friends, the tax hinges on who contributed what and how the account is set up—whether as joint tenants or tenants in common. If the deceased provided all the funds, the entire balance might be included in their estate for IHT purposes. But don’t worry, I’ll break it all down with clear examples and practical tips to help you navigate this tricky area.
Why Joint Accounts Are Popular in the UK
Let’s start with the basics: joint bank accounts are a go-to for many Brits. Whether it’s a couple managing household bills or an elderly parent adding their child to help with finances, these accounts are practical. According to a 2023 UK Finance report, over 30% of UK adults have at least one joint bank account, with the majority held between spouses or partners. They’re convenient because both holders can access funds, pay bills, or manage savings without fuss. But when one account holder passes away, things can get messy for tax purposes, and that’s where IHT comes into play.
The Nuts and Bolts of Inheritance Tax
Before we dive into joint accounts, let’s get a grip on IHT. As of April 2025, IHT is charged at 40% on estates worth more than £325,000, known as the nil-rate band. If you leave your main home to direct descendants, like children or grandchildren, you get an extra £175,000 residence nil-rate band, bumping the tax-free threshold to £500,000. For married couples or civil partners, any unused nil-rate band can transfer to the surviving spouse, potentially allowing up to £1 million tax-free. HMRC collected £5.76 billion from IHT in 2020/21, but only 3.73% of estates paid it, showing most people dodge this tax through exemptions or planning.
How Joint Accounts Work Legally
Now, here’s where it gets interesting: not all joint accounts are created equal. In the UK, they come in two flavours—joint tenants and tenants in common. As joint tenants, both account holders own the entire account, and if one dies, the other automatically inherits the lot through survivorship. This is standard for most couples. As tenants in common, each person owns a specific share, say 50% or 70%, and their portion goes to their estate, not the other holder, upon death. Check your bank’s terms, as most default to joint tenancy unless you specify otherwise. This setup is critical because it affects how HMRC views the account for IHT.
IHT and Joint Tenants: The Survivorship Rule
Picture this: you and your partner have a joint account as joint tenants. You both chuck in money, but you don’t keep track of who put in what. If one of you passes away, the surviving partner gets the whole account balance automatically, no probate needed. Here’s the good news—if you’re married or in a civil partnership, this transfer is IHT-free due to the spouse exemption. HMRC doesn’t care how much is in the account; it’s all exempt. But if you’re not married—say, it’s you and your sibling or friend—HMRC will dig deeper. They’ll look at who contributed what to decide how much of the account counts toward the deceased’s estate.
Tenants in Common: A Different Ballgame
Now, suppose you and your mate set up a joint account as tenants in common, each owning 50%. If you die, your 50% doesn’t automatically go to the other account holder—it goes to your estate, to be distributed per your will or intestacy rules. HMRC will include your share in your estate’s IHT calculation. If your estate’s total value exceeds £325,000 (or £500,000 with the residence nil-rate band), your share of the account could be taxed at 40%. The key here is documentation: if you can’t prove your share, HMRC might assume you owned more, hiking your tax bill.
Contributions Matter More Than You Think
Here’s a curveball: HMRC doesn’t just split joint accounts 50/50 for IHT. They follow the money trail. If you put all the cash into a joint account with your adult child, HMRC could treat the entire balance as part of your estate when you die, even if your child could access it. For example, in the 2017 case Lidher v Revenue and Customs, the son argued his late father had no beneficial interest in their joint account because he (the son) provided all the funds. The tribunal disagreed, ruling 50% was taxable because evidence was lacking. Keep records of who paid what—bank statements, transfer receipts—to avoid disputes.
The Spouse Exemption: A Lifesaver for Couples
Let’s talk perks. If you’re married or in a civil partnership, the spouse exemption is your best mate. Any money in a joint account that passes to your spouse or civil partner on your death is 100% IHT-free, no matter how much is in there. Say you and your spouse have £100,000 in a joint account, and you pass away. The whole lot goes to them tax-free, and it doesn’t eat into their nil-rate band. This exemption saved £15.7 billion in IHT in 2020/21, mostly for spousal transfers. But if you’re not married, brace for HMRC scrutiny.
Table: IHT Thresholds and Exemptions (2025)
Allowance Type | Amount | Details |
Nil-Rate Band | £325,000 | Tax-free threshold for all estates. |
Residence Nil-Rate Band | £175,000 | Extra allowance if main home is left to direct descendants. |
Combined (Individual) | £500,000 | Total tax-free for estates with residence nil-rate band. |
Spousal Transfer | Unlimited | Assets passed to spouse/civil partner are IHT-free. |
Transferable Nil-Rate Band | Up to £1,000,000 | Unused allowances from deceased spouse can double surviving spouse’s limit. |
Source: GOV.UK, HMRC Guidelines, April 2025
Inheritance Tax Allowances and Exemptions (2025)
Lifetime Gifts and Joint Accounts
Be careful! If you add someone to your account and they withdraw money, it could count as a gift for IHT purposes. Say you put £50,000 into a joint account with your daughter, and she withdraws £10,000 for herself. HMRC might see that as a gift from you. If you die within seven years, that gift could be taxed if your estate exceeds the nil-rate band. The tax rate tapers from 40% (within three years) to 8% (six to seven years). Keep a paper trail of withdrawals to avoid surprises.
Practical Example: The Case of Marjorie and Tom
Now, consider this: Marjorie, a widow, adds her son Tom to her bank account to help manage her bills. She deposits £80,000, and Tom adds nothing. When Marjorie dies, the account has £75,000. HMRC treats the full £75,000 as part of Marjorie’s estate because she provided all the funds. If her total estate is £400,000, £75,000 is taxable at 40% (assuming no residence nil-rate band applies), costing Tom £30,000 in IHT. Had Marjorie kept the account in her name alone, the outcome would be the same, but a joint account made it easier for Tom to access funds post-death. Clear records could have clarified contributions, avoiding disputes.
Why Documentation Is Your Best Friend
None of us is a tax expert, but here’s a pro tip: keep meticulous records. HMRC loves evidence—bank statements, transfer records, even emails showing who deposited what. In a 2023 case, O’Neill v IRC, the tribunal ruled that unclear contribution records led to a 50% split assumption, costing the estate thousands in extra IHT. If you’re setting up a joint account, note the purpose and contributions in writing. A simple letter to the bank or a signed agreement can save your heirs a headache.
In What Situations Joint Bank Accounts are Subject To Inheritance Tax in the UK
Joint bank accounts are a common financial tool used by couples, family members, or business partners in the UK. They offer the convenience of shared access to funds, but also come with specific legal and tax implications, especially when one of the account holders passes away. Inheritance Tax (IHT) in the UK is a tax on the estate (the property, money, and possessions) of someone who has died. Understanding when and how this tax applies to joint bank accounts is crucial for effective financial planning and compliance with tax regulations.
When Does Inheritance Tax Apply to Joint Bank Accounts?
Inheritance Tax may apply to joint bank accounts in several situations, the understanding of which requires delving into the principles of account ownership and survivorship.
Principle of Survivorship: Typically, when one account holder dies, the surviving account holder automatically becomes the sole owner of the account's contents. This process is known as the principle of survivorship. However, the value of the deceased's share in the joint account might be considered part of their estate for IHT purposes.
Contributions to the Account: If the joint account was funded unequally, the deceased's contribution to the account is assessed. For instance, if the deceased had funded the majority of the account, that proportion is subject to IHT.
Beneficial Ownership: In situations where the account holders had different beneficial interests in the account (i.e., one person contributed more to the account than the other), the deceased's share at the time of death is evaluated for IHT.
Intention of Gift: If the deceased had expressed or implied that the joint account was intended as a gift to the other account holder, then the entire value of the account might escape IHT. However, this can be complex to establish and often requires legal input.
Exemptions and Thresholds
The standard IHT threshold in the UK is £325,000 (as of the latest guidelines). If the total value of the deceased's estate, including their share in the joint account, is below this threshold, no IHT is due.
Situations Requiring Careful Consideration
Elderly Parents and Adult Children: Often, elderly parents might add an adult child to their account for convenience. In such cases, unless it is clearly intended as a gift, the entire account could be subject to IHT upon the parent's death.
Business Partners: For joint accounts held by business partners, the share of the deceased in the account is treated as part of their business assets and might qualify for Business Relief, potentially reducing IHT liability.
Married Couples and Civil Partnerships: Transfers between spouses or civil partners are usually exempt from IHT, but the situation can become complex if the surviving spouse is not a UK domiciled.
Documenting the Purpose and Contributions
To minimize complications, it is advisable for joint account holders to keep clear records of their intentions and contributions to the account. This documentation can be crucial in determining how the account is treated for IHT purposes.
Seek Professional Advice
Given the complexities surrounding joint bank accounts and IHT, seeking professional advice is recommended. A tax advisor or solicitor can provide tailored advice based on individual circumstances and help navigate the nuances of IHT regulations.
Changes in Regulations and Thresholds
It is important to stay updated on changes in tax laws and thresholds, as these can impact IHT liabilities. Regularly reviewing your estate plan, including how joint bank accounts are managed, is a prudent approach.
In summary, joint bank accounts in the UK can be subject to Inheritance Tax under various circumstances, primarily depending on contributions, the intention of ownership, and the relationship between account holders. Understanding these factors, along with staying informed about current laws and seeking professional advice, is essential for effective estate planning and ensuring compliance with tax regulations.
In What Situations Joint Bank Accounts are Not Subject To Inheritance Tax in the UK
Joint bank accounts, commonly used for their convenience and ease of access, can sometimes be exempt from Inheritance Tax (IHT) in the UK. Understanding the specific situations where these exemptions apply is crucial for individuals looking to plan their estates effectively and minimize tax liabilities. We will now explore various scenarios under which joint bank accounts are not subject to IHT.
Joint Accounts Between Spouses and Civil Partners
One of the most straightforward exemptions applies to joint accounts held by spouses or civil partners. When one partner dies, the entire joint account automatically passes to the surviving partner without any IHT liability. This exemption is rooted in the broader principle that transfers between spouses and civil partners are generally exempt from IHT, regardless of the amount. However, it's important to note that this exemption only applies if both partners are domiciled in the UK.
Accounts Held in Trust
In some cases, joint accounts may be set up in trust, either explicitly or implicitly. If it can be demonstrated that the account was held in trust for another person, such as a child, then the deceased's share of the account may not be considered part of their estate for IHT purposes. This situation often requires clear documentation and legal interpretation to establish the trust arrangement.
Proving Intention of Gift
If it can be proven that the deceased intended the funds in the joint account to be a gift to the other account holder, then the account might not be subject to IHT. This scenario requires evidence showing that the deceased intended to relinquish control over the funds and that the surviving account holder had full access and control. Proving such intention can be complex and often necessitates thorough documentation.
Accounts with Nominal Contributions
In situations where one account holder's contribution to the joint account was nominal or significantly smaller than the other, the account might not be included in the estate of the person who contributed less. For example, if a parent adds an adult child to their account for convenience but the child does not contribute to the account, the account may not be part of the child's estate for IHT purposes if the child dies first.
Small Estates Exemption
If the total value of the deceased's estate, including their share in the joint account, is below the IHT threshold, currently set at £325,000, no IHT is due on the estate. This exemption applies to the entire estate and is not specific to the joint account, but it can result in the joint account effectively escaping IHT if the estate is small enough.
Accounts with Business Interests
If a joint account holds funds related to a business, and the deceased was a partner or had a share in the business, their portion of the account may qualify for Business Relief. This relief can reduce the IHT liability, potentially to zero, depending on the nature of the business and the deceased's involvement in it.
Documentation and Record-Keeping
In all these scenarios, the importance of documentation cannot be overstated. Keeping clear records of contributions, intentions, and arrangements regarding the joint account can be pivotal in determining its IHT liability. This is especially relevant in proving the intention of gifts or trust arrangements.
Changes in Law and Regulations
It's important to note that tax laws and regulations, including those governing IHT, can change. Staying informed about current laws and consulting with a tax advisor or solicitor is crucial for accurate estate planning.
Joint Accounts Post-Death
After the death of one account holder, the joint account may continue to operate normally with the surviving holder. If the account is not subject to IHT due to any of the above exemptions, it remains accessible and usable by the surviving account holder without immediate tax implications.
In conclusion, joint bank accounts in the UK are not subject to Inheritance Tax in several specific situations, including when held between spouses or civil partners, when intended as gifts, when contributions are nominal, in small estates, and in certain business-related circumstances. Understanding these exemptions, backed by proper documentation and legal advice, is essential for effective financial and estate planning. Regularly reviewing these arrangements in light of changing laws and personal circumstances ensures compliance and optimal tax planning.
Navigating Joint Bank Accounts: Tax Traps and Planning Strategies
When HMRC Comes Knocking: Proving Beneficial Interest
Now, let’s get into the nitty-gritty: HMRC doesn’t just take your word for it when it comes to joint accounts. They’re all about beneficial interest—who really owns the money. If you and your sister share an account but you deposited every penny, HMRC might argue the whole balance is yours for IHT purposes, even if she could spend it. In a 2024 case, Thompson v HMRC, the deceased had added her niece to a £60,000 joint account for convenience. The niece provided no funds, so HMRC included the full amount in the estate, slapping a £24,000 IHT bill. To avoid this, document the account’s purpose—like a letter stating it’s for “convenience only”—and keep transfer records.
Joint Accounts and Probate: A Hidden Perk
Here’s something you might not know: joint accounts as joint tenants can bypass probate. When one holder dies, the account automatically passes to the survivor, no court process needed. This saved UK families an estimated £200 million in probate fees in 2023, per the Law Society. For spouses, it’s a double win—IHT-free and probate-free. But for non-spouses, like a parent and child, the taxman still wants their cut if the deceased funded the account. Always weigh this against the convenience of joint access, especially for elderly account holders.
The Gift with Reservation Trap
Be careful! Adding someone to your account could accidentally trigger a gift with reservation of benefit (GWR). Say you put £100,000 into a joint account with your son, but you keep using the money for your bills. HMRC might say you never truly gave it away, so the full amount stays in your estate for IHT. In 2022, HMRC challenged a similar case, Re: Patel Estate, where a father’s joint account with his daughter was taxed entirely because he retained control. To avoid this, ensure the other holder has genuine access and you’re not treating the account as “yours.” Clear boundaries—like separate withdrawals—help.
Table: IHT Tax Rates on Potentially Exempt Transfers (PETs)
Years Between Gift and Death | IHT Rate | Example: £50,000 Gift |
Less than 3 years | 40% | £20,000 tax |
3 to 4 years | 32% | £16,000 tax |
4 to 5 years | 24% | £12,000 tax |
5 to 6 years | 16% | £8,000 tax |
6 to 7 years | 8% | £4,000 tax |
Over 7 years | 0% | £0 tax |
Source: GOV.UK IHT Guidance, April 2025
This table shows how gifts from joint accounts (like withdrawals by the other holder) are taxed if you die within seven years. It’s a stark reminder to plan early.
Step-by-Step Guide: Setting Up a Joint Account to Minimise IHT
So, you’re thinking about a joint account? Here’s how to do it smartly to keep IHT at bay:
Define the Purpose: Decide why you’re opening the account—convenience, shared expenses, or gifting. Write it down in a signed agreement.
Choose Ownership Type: Opt for joint tenants for automatic survivorship (ideal for spouses) or tenants in common for clear shares (better for non-spouses).
Track Contributions: Use a log (like the template in Part 1) to record who deposits what. Attach bank statements as proof.
Limit Access if Needed: If it’s for convenience (e.g., a child managing your bills), consider a power of attorney instead to avoid IHT traps.
Review Annually: Check the account’s setup and contributions yearly to ensure it aligns with your estate plan.
Consult a Tax Adviser: For estates near or above £325,000, get professional advice to avoid HMRC surprises.
This guide can save you from costly mistakes, especially if your estate is complex.
Setting Up a Joint Account for IHT Minimization
Business Owners and Joint Accounts: Extra Considerations
Now, if you’re a business owner, joint accounts can get trickier. Many sole traders or partners use joint accounts with spouses for business expenses, blurring personal and business funds. If you die, HMRC might include the account in your estate if it’s deemed personal. In a 2023 case, Khan v HMRC, a business owner’s joint account with his wife was taxed because they couldn’t prove business-only use. Keep business accounts separate, and if you must use a joint account, document its purpose clearly—e.g., “for business loan repayments.” Also, business property relief can reduce IHT on business assets, but it won’t apply to cash in joint accounts.
Practical Scenario: The Case of Aisha and Imran
Consider this: Aisha, a small business owner, shares a joint account with her husband, Imran, to cover shop expenses. They deposit £40,000 together, but Aisha contributes £30,000 from her business profits. When Aisha dies in 2024, their estate is worth £450,000, including her £30,000 share of the account. Since they’re married, Imran inherits the account IHT-free. But if Imran wasn’t her spouse—say, her business partner—HMRC would tax Aisha’s £30,000 share at 40% (£12,000) if her estate exceeded £325,000. Aisha could’ve avoided issues by keeping business funds separate or proving her contribution share.
Using Trusts to Sidestep IHT
Here’s a clever move: trusts can shield joint account funds from IHT. Instead of adding your child to your account, transfer money into a discretionary trust. You can appoint trustees (including your child) to manage it, and if you survive seven years, the funds are IHT-free. Trusts cost £1,000–£5,000 to set up, per 2025 solicitor fees, but for estates over £500,000, they’re worth it. In 2023, trusts saved UK families £1.2 billion in IHT, per HMRC data. Just don’t use the trust’s money yourself, or it’s a GWR.
The Role of Wills in Joint Accounts
None of us likes thinking about wills, but they’re crucial. If your joint account is tenants in common, your share passes per your will. Without a will, intestacy rules apply, and your share might go to unintended heirs, triggering IHT. For joint tenants, the account skips your will due to survivorship, but a will still clarifies your estate’s other assets. In 2024, 40% of UK adults lacked a will, per YouGov, risking IHT chaos. A simple will costs £150–£300 and can save thousands in tax.
Planning for Non-Spousal Joint Accounts
So, you’ve got a joint account with your mate or grown-up kid? Plan carefully. If you fund it entirely, consider gifting small amounts annually (£3,000 per person, IHT-free) instead of a joint account. Or, use tenants in common to define shares clearly. In a 2025 HMRC audit, a father’s £90,000 joint account with his son was fully taxed because he provided all funds and lacked documentation. A tenants-in-common setup with a 10% share for the son could’ve cut the tax bill by £32,000.
Tax Planning for High-Value Estates
If your estate’s pushing £1 million, joint accounts need extra scrutiny. Every pound above £325,000 (or £500,000 with the residence nil-rate band) is taxed at 40%. For a £200,000 joint account where you contributed £150,000, that’s £60,000 in IHT if you die. Consider lifetime gifts or trusts to reduce your estate’s value. In 2023/24, HMRC reported £2.1 billion in IHT from estates over £1 million, showing high earners need proactive planning. A tax adviser can tailor strategies to your situation.
The Importance of Regular Reviews
Now, don’t set it and forget it. Life changes—marriages, divorces, new kids—can mess with your joint account’s IHT status. Review your accounts every year or after major life events. In 2024, a divorced couple’s joint account was taxed because they forgot to split it post-separation, costing £15,000 in IHT. A quick bank visit could’ve fixed it. Regular reviews also catch contribution errors, keeping your records HMRC-proof.
Maximising Your Wealth: Key Takeaways on Joint Bank Accounts and IHT
Joint accounts with spouses or civil partners are exempt from IHT due to the spouse exemption, allowing tax-free transfers regardless of the account balance.
Non-spousal joint accounts may be subject to IHT if the deceased contributed funds, with HMRC taxing the deceased’s share or the entire balance if they provided all the money.
Joint tenants vs. tenants in common matters: Joint tenants pass the account to the survivor automatically, while tenants in common allocate shares to the estate, impacting IHT calculations.
Documenting contributions is critical to prove who owns what in a joint account, preventing HMRC from assuming the deceased owned the full balance.
Gifts from joint accounts can trigger IHT if the donor dies within seven years, with tax rates tapering from 40% to 8% based on the timing.
Joint accounts as joint tenants bypass probate, saving time and fees, but non-spousal accounts still face IHT scrutiny on the deceased’s contribution.
Business owners should separate business and personal joint accounts to avoid HMRC taxing the funds as personal assets, increasing IHT liability.
Trusts can reduce IHT by removing joint account funds from your estate, provided you survive seven years and don’t retain control.
Clear wills are essential for tenants in common accounts to direct your share to intended heirs, avoiding intestacy rules and unexpected IHT.
Regular account reviews prevent IHT surprises, ensuring contributions, ownership types, and estate plans align with your financial goals.
How Can a Tax Accountant Help with Inheritance Tax in the UK
Inheritance Tax (IHT) in the UK can be a complex and often daunting aspect of managing an estate. The role of a tax accountant in navigating this terrain is invaluable. From calculating potential liabilities to implementing strategies for tax efficiency, a tax accountant's expertise can significantly ease the burden on individuals dealing with IHT. This comprehensive guide explores the various ways in which a tax accountant can assist with IHT in the UK.
Understanding Inheritance Tax and Its Implications
First and foremost, a tax accountant provides clarity on the intricacies of IHT. They can explain the thresholds, rates, and exemptions that apply, ensuring that individuals are well-informed about their potential tax liabilities. For instance, as of the latest guidelines, IHT is charged at 40% on estate values above the £325,000 threshold. However, this can vary based on factors like charitable donations or the transfer of assets to a spouse.
Estate Valuation and Tax Calculation
Accurately valuing an estate is a crucial step in determining IHT liability. A tax accountant assists in appraising the total value of an estate, including property, investments, and other assets. They ensure that all relevant assets are accounted for and valued according to current market conditions, providing a clear picture of the potential IHT due.
Tax Efficient Will Planning
A tax accountant plays a critical role in structuring wills to maximize tax efficiency. They can advise on how to leverage allowances and reliefs, such as the residence nil rate band, which provides an additional threshold when passing on a family home to direct descendants. By optimizing the distribution of assets in a will, a tax accountant can help minimize the IHT burden on beneficiaries.
Gifts and Potentially Exempt Transfers
Tax accountants can guide individuals on the rules surrounding gifts and potentially exempt transfers (PETs). For instance, gifts made more than seven years before death are generally exempt from IHT. They can help plan gift-giving strategies that fall within the legal frameworks, reducing the overall value of an estate for IHT purposes.
Trust Formation and Management
Setting up trusts can be an effective way to manage IHT liabilities. A tax accountant can advise on the types of trusts suitable for an individual’s circumstances, assisting with the establishment and management of these trusts. This includes guidance on the IHT implications for different trust structures and the associated compliance requirements.
Business Relief and Agricultural Relief
For estates that include a business or agricultural property, tax accountants can help in claiming Business Relief or Agricultural Relief. These reliefs can significantly reduce IHT liabilities, sometimes up to 100% of the value of the relevant assets. A tax accountant ensures that all criteria are met and that the maximum relief is claimed.
International Considerations
For estates with international elements, such as assets overseas or non-domiciled beneficiaries, a tax accountant provides essential advice on the cross-border implications of IHT. This includes understanding the interaction between UK IHT laws and foreign tax regulations, helping to avoid double taxation and maximizing global tax efficiency.
Dealing with HM Revenue & Customs (HMRC)
Navigating the complexities of HMRC requirements can be challenging. A tax accountant assists in preparing and submitting the necessary forms and documents for IHT purposes. They can also represent individuals in any discussions or disputes with HMRC, ensuring that their interests are effectively communicated and protected.
Planning for IHT Payments
A tax accountant can help plan how to fund any potential IHT liabilities, advising on options like life insurance policies or the liquidation of assets. This foresight ensures that beneficiaries are not burdened with significant tax payments upon inheritance.
Regular Review and Updates
Tax laws and personal circumstances change. Regular consultations with a tax accountant ensure that estate and IHT planning strategies remain current and effective. They can provide updates on any changes in legislation that may impact IHT liabilities and advise on necessary adjustments to estate planning.
A tax accountant is an invaluable asset in managing Inheritance Tax in the UK. Their expertise in valuation, planning, compliance, and negotiations with tax authorities provides individuals with the guidance needed to navigate the complexities of IHT. Through strategic planning and informed decision-making, a tax accountant helps in achieving tax efficiency, ensuring that individuals can pass on their legacy to their beneficiaries in the most effective manner. Regular engagement with a tax accountant is key to keeping abreast of changes in laws and personal circumstances, ensuring ongoing compliance and optimization of IHT strategies.
FAQs
1. Q: Can you avoid inheritance tax by setting up a joint bank account with your child?
A: Setting up a joint bank account with your child doesn’t automatically avoid inheritance tax (IHT). If you provide all the funds, HMRC may include the entire balance in your estate for IHT purposes, especially if you retain control or benefit. To reduce IHT, consider gifting funds within the £3,000 annual exemption or using a trust, ensuring you survive seven years.
2. Q: How does HMRC determine the taxable portion of a joint bank account?
A: HMRC assesses the deceased’s contributions to the joint account to determine the taxable portion. If you contributed 100%, the full balance is typically included in your estate. They may request bank statements or transfer records to verify contributions.
3. Q: Are joint bank accounts with siblings treated differently for IHT than those with spouses?
A: Yes, joint accounts with siblings are not covered by the spouse exemption, so the deceased’s contribution is included in their estate for IHT. Accounts with spouses or civil partners are usually IHT-free due to the unlimited spousal exemption.
4. Q: What happens to a joint bank account if both owners die simultaneously?
A: If both joint account holders die at the same time, the account is split equally between their estates for IHT purposes, unless evidence shows unequal contributions. Each estate’s share is then subject to IHT if above the £325,000 nil-rate band.
5. Q: Can you use a joint bank account to gift money tax-free during your lifetime?
A: You can gift money from a joint account tax-free up to the £3,000 annual IHT exemption or small gift allowance (£250 per person). Larger gifts may be treated as potentially exempt transfers, taxable if you die within seven years.
6. Q: Does the residence nil-rate band apply to joint bank accounts?
A: No, the residence nil-rate band (£175,000 as of April 2025) only applies to your main home left to direct descendants. Joint bank account funds are separate and count toward the standard £325,000 nil-rate band.
7. Q: How does a joint bank account affect your estate’s valuation for IHT
A: The deceased’s share of a joint account, based on their contributions, is added to their estate’s value. If you funded the entire account, its full value may increase your estate’s taxable amount above the nil-rate band.
8. Q: Can you set up a joint account to avoid care home fees and IHT?
A: Using a joint account to avoid care home fees or IHT is risky. Local authorities may view it as deliberate deprivation of assets, and HMRC could include the funds in your estate if you retain control, triggering IHT.
9. Q: Are joint accounts with business partners subject to IHT differently?
A: Joint accounts with business partners are taxed based on the deceased’s contributions, not automatically split 50/50. If used for business purposes, business property relief may apply, reducing IHT on qualifying business assets.
10. Q: What records should you keep for a joint bank account to avoid IHT disputes?
A: Maintain detailed records, including bank statements, transfer receipts, and a contribution log noting who deposited what and why. A written agreement on the account’s purpose can also clarify intentions for HMRC.
11. Q: Can you change a joint account to tenants in common to reduce IHT?
A: Yes, converting a joint account to tenants in common allows you to define specific shares, ensuring only your portion is included in your estate for IHT. Contact your bank to amend the account structure.
12. Q: Are joint savings accounts treated the same as joint current accounts for IHT?
A: Yes, HMRC treats joint savings and current accounts similarly for IHT, focusing on the deceased’s contributions. Both are included in the estate based on the proportion you funded, unless exempt.
13. Q: How does IHT apply to joint accounts held with someone living abroad?
A: If the co-owner lives abroad, IHT still applies to the deceased’s share based on their contributions, as long as the deceased was UK-domiciled. International tax treaties may affect the surviving owner’s tax obligations.
14. Q: Can you reduce IHT by transferring a joint account to a trust?
A: Yes, transferring funds to a discretionary trust can remove them from your estate for IHT if you survive seven years and don’t benefit from the trust. Setup costs range from £1,000–£5,000.
15. Q: What happens if you withdraw funds from a joint account before death?
A: Withdrawals by the co-owner may be treated as gifts, potentially exempt from IHT if you survive seven years. If you withdraw your own contributions, it reduces the taxable amount in your estate.
16. Q: Are joint accounts with charities exempt from IHT?
A: If a joint account is held with a UK-registered charity, the deceased’s share may qualify for charity exemption, reducing IHT. The charity must be a named account holder, and contributions must be clear.
17. Q: How does IHT apply to joint accounts opened shortly before death?
A: HMRC closely scrutinizes accounts opened shortly before death, suspecting tax avoidance. If you funded the account, the full balance may be included in your estate, increasing IHT liability.
18. Q: Can you use a joint account to pay IHT owed by the estate?
A: Yes, if the surviving joint tenant inherits the account, they may use the funds to pay IHT owed on the deceased’s share, especially if the estate lacks liquidity. HMRC may pursue the survivor first.
19. Q: Does adding a Power of Attorney to a joint account affect IHT?
A: Adding someone as a Power of Attorney doesn’t make them a joint owner, so it doesn’t directly affect IHT. The account remains in your estate unless funds are gifted, which may have IHT implications.
20. Q: Are joint accounts with unequal contributions taxed differently for IHT?
A: Yes, HMRC taxes the deceased’s share based on their contributions, not an equal split. If you provided 80% of the funds, 80% of the balance is included in your estate for IHT purposes.
The Author:
Adil Akhtar, ACMA, CGMA, CEO and Chief Accountant of Pro Tax Accountant, is an esteemed tax blog writer with over 10 years of expertise in navigating complex tax matters. For more than three years, his insightful blogs have empowered UK taxpayers with clear, actionable advice. Leading Advantax Accountants as well, Adil blends technical prowess with a passion for demystifying finance, cementing his reputation as a trusted authority in tax education.
Email: adilacma@icloud.com
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