IHT Joint Accounts

Not if your grandmother provided all the money and only added your aunt to make the account easier to manage. This may occur if your aunt is acting as a lasting power of attorney.

For inheritance tax purposes, HMRC looks at who owns the money rather than simply whose names appear on the account. HMRC’s manual IHTM15042 confirms that joint bank accounts are normally treated according to who contributed the funds. Therefore, if your grandmother provided the whole balance, the starting position is that the whole account remains part of her estate for inheritance tax purposes.

This principle was considered in Matthews v HMRC [2012] UKFTT 658 (TC). The deceased transferred her own money into an account held jointly with her son but remained able to withdraw the whole balance. Although her son was also named on the account and could make withdrawals, the tribunal held that the full amount remained within her inheritance tax estate.

Therefore, simply adding a family member to an account for administrative convenience does not automatically give them the entitlement to a 50% share of the money.

What if my grandmother genuinely gives my aunt half of the money?

The position could be different if your grandmother intended to make a genuine and immediate gift of 50% of the savings.

There would need to be clear evidence that your aunt became entitled to half of the money straightaway and could use it for her own benefit. For example, your grandmother might say, “Half of this money belongs to you now and you can use it as your own”.

HMRC accepts that the intention of the parties and their conduct can be relevant when establishing the beneficial ownership of jointly held property. Evidence of your nan’s intention at the time the account was made joint is therefore important. This could include written confirmation of the gift, statements made at the time, and evidence showing how the account was subsequently operated. However, your aunt simply withdrawing money for her own benefit would not necessarily prove that 50% of the account had been gifted to her when she was originally added to the account. HMRC accepts that such a withdrawal may instead amount to a separate lifetime gift at the date the money is withdrawn. For this reason, clear written evidence confirming whether an immediate gift was intended and the amount gifted would be advisable.

If a genuine gift was made, the value transferred would normally be a potentially exempt transfer under section 3A of the Inheritance Tax Act 1984. Your grandmother would generally need to survive seven years from the date of the gift for it to fall completely outside the inheritance tax calculation. If she does not survive seven years from the date of the gift, taper relief (IHTM14612) may be available provided she survives for more than three years.

However, your grandmother saying, “You can keep half if anything happens to me” would be less clear. This may suggest that your aunt is only intended to receive the money on your grandmother’s death rather than owning it immediately. In that situation, the whole balance could remain within your grandmother’s estate.

Where one person provides all the money held in a joint bank account, the starting point is that the other account holder does not automatically own a share of those funds. Instead, they will normally be treated as holding the money on a resulting trust for the person who provided it, unless there is evidence that an outright gift was intended. This principle was considered in case law, Aroso v Coutts.

Even where there is evidence that the surviving account holder was intended to receive the money, it is important to establish when they became entitled to it. If they were only intended to receive the funds on the original owner’s death, rather than owning them during that person’s lifetime, the full balance would still form part of the original owner’s estate for inheritance tax purposes. This was the position in IRC v O’Neill [1998] STC 154.

Gift with reservation of benefit (GWR)

There could also be a gift with reservation of benefit under section 102 of the Finance Act 1986. If your grandmother says she has given half of the money away but continues to treat and use the whole account as her own, the gifted amount may still be included in her estate. This is because the aunt is not beneficially entitled to enjoy the funds in their entirety if the grandmother also utilises these funds or has them available to rely on if her share of the funds is used in full.

Conclusion

If your aunt was added only to help manage the account, 100% of the savings would normally remain within your grandmother’s inheritance tax estate.

A genuine and immediate gift of 50% could change the position, but the intention would need to be clear, and the account would need to be operated consistently with that gift. In practice, transferring the gifted amount into an account held solely by your aunt would provide much stronger evidence that a completed gift had been made.

For more information, please contact us at: consultancy@vantagefeeprotect.com

Gavin Anderson
Tax Consultant