The policy proceeds of a policy in the sole name of the wife, amounting to £1.5m were paid into a joint account with her husband 2 years prior to the husband’s death. The intention had been to pay this to their children. Within 2 months of receiving the funds, the money was paid to the children. Given that the money came from the policy proceeds of the surviving spouse, do we need to inform HMRC of the transaction in the IHT form of the deceased husband, ie do we need to include reference to it but confirm we are not treating it as a joint gift? Would the answer be any different if the husband had signed the cheques as he dealt with all the finances? (we do not know who signed the cheques at this point)?
I would be inclined to obtain a written statement from the wife, setting out her intentions with regard to the policy proceeds.
If she had them paid into the joint account purely for the sake of convenience and intended that they would be paid to the children from the outset, I suggest it is strongly arguable that any presumption that the monies were joint monies can be rebutted.
Even if the husband had signed the cheques, that does not mean he made the gift – he was merely acting under his wife’s direction/mandate.
If the wife’s statement supports the belief that there was no gift by the husband, I would not be inclined to disclose the non-event to HMRC. Although there may be an argument that the transactions should be disclosed, if only so that HMRC can confirm that they do not affect the husband’s estate, such a course of action may be taken to suggest uncertainty as to the taxation implications and encourage HMRC to challenge the wife’s statement.
Paul Saunders FCIB TEP
Independent Trust Consultant
Providing support and advice to fellow professionals
I will ask the wife to set out what her intentions were - many thanks Paul
I don’t know English law on this but have encountered US law frequently: unless there is a reason to presume a gift or there is a community property element, the funds in a joint account belong to the spouse or other person who put them there.
Professionally speaking, joint accounts are poor receptacles for large sums of separate property. In the USA a Transfer on Death account works well as title and tax consequences are clear. I still haven’t found a decent solution for UK accounts (other than, for example, SIPPs) where a beneficiary can easily be named. Maybe better to leave in the lawyer’s trust account pending the drafting of the gift documentation.
In this case there will hopefully be documents showing intention, that use of a joint account was for convenience only. Who used the account normally? Was there commingling? Was an investment plan in place for the children? Indeed, are the children still minors?
We have a problem with Hargreaves Lansdown’s practice of account linking so that funds intended for a client’s child’s VPT (and any withdrawals) go through her personal account at Barclays. I have sought assurance that no money stays in such an account more than a week.
Her case is complicated by the fact that the family apartment (she’s a single mother) is in her name but by trust deed funded from abroad the 999-year lease extension, hence 1/3 of the value of the property (and the mortgage on it), belongs to the VPT. Sometimes you have to rely on good faith and the willingness of HMRC to accept that.
I completely agree with Paul’s comments.
The analysis of joint bank accounts is notoriously difficult, heavily dependent upon the underlying facts.
If the payment of the monies into the joint account by W was made on the clear understanding between W and H at the time of the deposit that W did not intend to pass any beneficial interest in the monies to H and that W intended to gift such monies to the children, and then did so, it would seem difficult to argue that H had any involvement relating to the monies.
Malcolm Finney
Many thanks for re-affirming this.