I would just like clarification. A lady died recently leaving a homemade will. The lady and her surviving husband held numerous joint assets. She has specifically bequeathed her 50% share in these jointly held assets to her children from her first marriage.
She has other assets in her sole name by which to be able to discharge any gifts to children. A DOV can be put in place to ensure that the children receive what their mother wished them to have.
However, in terms of IHT and notifying revenue, I consider that the assets which were jointly held pass to her husband by survivorship regardless of what the will says. This way requires no further reporting.
Yet, if we proceed as if the children actually receive her specific share of the jointly held accounts, this means that an IHT400 is required and tax may well be due.
Does anybody have any experience of such a situation or perhaps how the joint account situation would be treated? In my mind, joint assets pass outside of the will by survivorship and therefore this is the proper course of action ie no reporting required.
Your thoughts/comments would be greatly appreciated.
It depends on the terms of the Deed of Variation. If it includes the election to read back for IHT purposes, then it will be treated for IHT purposes as if the widow gifted the assets to her children under her estate. This may have IHT implications and the appropriate reporting requirements should be filed with HMRC.
If the DoV does not include the reading back election for IHT (or CGT) purposes, then it is as if the surviving spouse is gifting the assets and whilst there is no reporting requirement from an IHT point of view, there may be CGT on the gifts by husband.
As such, I would recommend a DoV with is read back for CGT purposes only, so the effect is that for IHT purposes spouse exemption applies and no additional reporting requirements and for CGT purposes, the children acquire at death value.
Interests are held as tenants in common or joint tenants. The survivorship rule applies to the latter and thus such interest cannot be left by will. However, an interest held as a tenant in common may be left by will.
Interests held as joint tenants pass by survivorship whatever the will provides. Severance can only occur during lifetime.
Although severance can only occur during lifetime, IHTA 1984 s142 allows for joint tenancies to be severed following the death of a joint tenant.
Assuming the interests were held as joint tenants (ie survivorship applies) then the estate may qualify as an excepted estate for IHT (hence no IHT400 required). If a Deed of Variation is executed (under IHTA 1984 s142 with reading back) under which the the deceased’s interests are severed and re-directed to the children IHT on the estate may be precipitated and an IHT400 becomes necessary.
On the death of a joint owner, jointly owned assets will pass to the survivor(s) outside of any will, unless held under a tenancy in common.
Details of the joint assets should be included on the IHT404, which is supplemental to the IHT400 (if required). Any exemptions, such as spouse exemption, should be claimed on the forms rather than the assets left out of the account.
And, yes, the survivor(s) in joint account can gift the deceased’s notional entitlement post-death by variation effective under s.142 IHTA 1984. However, it is a fallacy to say that the joint interest can be severed by such a variation, as a joint tenancy cannot be severed in retrospect after the death of a joint holder.
A variation is a gift by the surviving joint holder(s) of the deceased’s notional share, dressed up as a “severance” for the purposes of s.142 IHTA 1984 and s.62(6) TCGA 1992. As with any other gift, it will take effect only from the date of the variation (applying Waddington v. O’Callaghan, 1931). Accordingly, any income arising on the (former) joint asset(s) between the date of death and the date of the variation will be the income of the surviving joint owner(s) for income tax purposes, even if the variation gifts all such income to the beneficiary(s) of the variation.
Paul Saunders FCIB TEP
Independent Trust Consultant
Providing support and advice to fellow professionals
Many thanks for all of your comments. Based on the surviving spouse having inherited all of the joint assets (regardless of W’s direction for the children in the will), values were included within the Govt UK IHT Checker and there is no requirement to complete IHT400. However, I wondered whether Paul is suggesting that it is necessary to report on IHT400 (perhaps for absolute transparency and further assurance)?
As stated in my earlier post the IHT404 is supplemental to the IHT400 so that, as Malcolm indicates, no IHT404 is required if the IHT400 is not required.
Paul Saunders FCIB TEP
Independent Trust Consultant
Providing support and advice to fellow professionals