I am acting on behalf of an estate where the deceased (A) received a critical illness payment due to having been diagnosed with cancer. A opened an account with her mother (B) as joint owner. Over the next couple of years no further monies were deposited but B was paid out most of the money with a couple of payments being made to other parties.
For HMRC purposes do you think the payments made to B should be classed as gifts and therefore attract IHT?
Any comments would be welcomed.
TIA
In the absence of anything to the contrary, the account monies will ab initio be held beneficially equally ie on A paying the monies into the account at that point B becomes beneficially entitled to 50% thereof. Thus, PETs will be made on each addition made by A (not when any monies are extracted).
On any withdrawal by B the monies withdrawn become entirely those of B.
On the death of A or B the monies will pass by survivorship.
If however, for example, A made it clear to B that B was being added to the account purely for administrative purposes and could only withdraw on A’s request then the monies in the account belong 100% beneficially to A.
You would first need to examine who held the beneficial interest in the account when it was first created. If the intention was that A and B would beneficially own the account jointly then there was an immediate gift when the funds were placed in the joint account. If B was only named on the account for convenience, and the understanding was that the funds belonged to A, then each payment to B would be a gift unless it is a payment made for consideration (reimbursing expenses, etc).
I’d suggest no gifts (mother), the money does not form part of the estate, subject to signed joint bank agreement is on a joint tenancy - a resulting trust is created.
Payments to a third party, I’d assume are PETs. (Subject to allowances).
The position is quite complicated, and in some respects counterintuitive. For a discussion see my Taxation of Nonresidents & Foreign Domiciliaries chapter 94 (Joint accounts).
In short, assuming the intention was that A and B would beneficially own the account jointly, which is the usual case:
Payment in to the joint account by A is not a transfer of value for IHT. That makes sense that A has not reduced the value of his estate, because immediately after the payment he could get the money back.
Withdrawal (by B) is a PET by A at the time of the withdrawal.
This topic on the one hand drives me mad but on the other is somewhat fascinating.
I note James’ response but cannot understand why if A and B intend to own the account jointly and beneficially that on the transfer of monies by, say, A into the account that transfer is not a gift; In Sillars v IRC Dr Avery-Jones had commented that each deposit into the joint bank account was a gift as the other joint holder was free to withdraw such amount as and when she (ie daughter) chose. At the same time such deposits amount to GWRs on the part of the depositer.
I also understand that in Re Figgis that the judge described a transfer into an account as an immediate gift which was a gift of a fluctuating and defeasible asset.
Does this not suggest that a PET arises when a deposit is made?
I agree this is a really interesting (and counter-intuitive) area. Quite right in that there is an element of gift. However, IHT isn’t charged on gifts but on transfers of value. This is not a transfer value, see s 5(2) IHTA. HMRC also agree with this interpretation, see the manual at IHTM15043.
James and Rebecca’s responses make me realise there is more to this than my initial response, which looks to be incorrect. My thoughts were very much the same as Malcolm’s above. I will read the chapter in James’ book as suggested.
Does this analysis apply only to deposits into joint accounts or other similar situations because of the ability of the depositor to subsequently make withdrawals? Compare this, for instance, to transferring the beneficial interest in a property from sole name into a beneficial joint tenancy, which would surely constitute a transfer of value.