How does HMRC treat a PET made from a joint H & W bank account. Is the relevant 7 year period calculated back from the 1st or 2nd death assuming H & W die on different dates
You need to identify who exactly has made the gift. Default would be that a transfer from a joint bank account is 50% from H and 50% from W. IHT is not a “joint tax” for married couples. If the transfer was £100,000 (ignoring annual exemptions, etc), there would be two PETs: £50k from H and £50k from W. If H dies after 5 years and W after 13 years, H’s PET will use up part of his NRB (and that part will be lost and will not be transferred to W, even if W survives 7 years from the PET and 7 years from H’s death).
However, it is conceivable that a gift from H is paid out of a joint account and it will be a PET entirely from H, but this will depend very much on the facts of the case. If H had executed a Deed of Gift to the tune of £100k, the PET would take effect on the date of the deed; if £100k is then transferred from the joint account to the donee, then there would be a strong argument that the payment from the joint account is in reality a gift of £50k from W to H (spouse exemption) and the full satisfaction of the gift effected by the Deed of Gift.
Paul Davidoff
New Quadrant
Thank you Paul. That makes complete sense.
Regards
Graham
In my experience HMRC have treated a PET made from a joint H&W account as having been made as to 50% by each spouse. So, the seven year period for each spouse is calculated from the date of the gift. In consequence, one PET could become chargeable, whereas the other might not if the surviving spouse lives for more than seven years.
Cliona O’Tuama
Solicitor
Thank you for your reply which confirms what Paul has said.
Regards
Graham
Hate to disagree with Paul ever. A genuinely joint bank account works on the basis that either owner is free to draw out an amount for their own use, even the whole of it. H should draw out the £100k and ideally put it into a solely owned account first but if paid directly to a transferee pursuant to a contemporaneous deed of gift made only by him there should be no question but he is sole transferor for IHT. But see my third paragraph below for “genuineness”.
Many use joint accounts to avoid the need for probate. In those circumstances you can expect HMRC to argue to tax only the deceased’s putative half share. HMRC say they will not seek to tax the whole based on an argument that any holder is free to draw out the whole, though I consider it is strictly the legal position.
Unequal contributions to the account may interest HMRC if the owners are not spouses and if the inequality is severe (though it may interest the divorce court more as regard married owners). The mischief is that an account is opened close to death and funded wholly or mainly by the later deceased and the argument is then adduced, hey presto, only 50% is taxable. This might also be so if A opens an account with B and funds it exclusively,allowing B to make a sole lifetime gift shortly after. This should not trouble HMRC if A and B are spouses or civil partners because A’s funds could have been given to B outright to fund the lifetime transfer with exemption (subject to the domicile mismatch which would be a combination of exemption and PET for a non-domiciled transferee from a domiciled transferor).
HMRC set out their practice in IHTM15042https://www.gov.uk/hmrc-internal-manuals/inheritance-tax-manual/ihtm15042
Jack Harper
1 Like
Thank you Jack, as ever you seem to have your ‘finger on the button’
Regards
Graham
I might have usefully added that the strict law aids the taxpayer who funds a joint bank account. Because they can draw out immediately the amount paid in there is no TOV by computation so their intent, gratuitous or not, is immaterial. Nor is a failure to draw it out an omission within s3(3) IHTA. Even if the exercise by the other party of their right to draw diminishes his estate, that omission does not increase the other’s estate: the other has the right to withdraw 100% and the total credit value in the account is diminished by his exercising his own right not by the omission of the other joint owner.
Jack Harper
I would add that Jack is usually right about the nitty gritty detail of rules and he raises certain possible scenarios, but I would say that in a “usual” situation, a joint bank account of H&W will actually be theirs jointly and equally from a beneficial standpoint and the question will then be whether a gift from the account to B:
(a) is effectively a gift 50% from H and 50% from W or
(b) is intended to be a gift of 50% of the amount from W to H and then a gift of 100% of the amount from H to B.
I would say that this is a question of fact, although (a) would be the default position.
Paul