Helen Barnett, Legal Director, Wedlake Bell LLP
Most joint bank account holders might fairly assume that when one of them dies, half of the account will be treated as theirs for the purposes of totalling up their estate for inheritance tax ("IHT") purposes; however, this is not always the case.
HM Revenue and Customs treats each joint account holder as beneficially entitled to the proportion of the account attributable to their contributions. Therefore, if the deceased provided 100% of the funds to the account, 100% of the balance in the account at the date of death could be treated as theirs and potentially subject to IHT at 40%.
If the account holders do not contribute equally to a joint account (as is usually the case), this can lead to complications with IHT calculations, particularly if sizeable gifts have been made from the account before death (since such gifts are potentially subject to IHT if the donor dies within seven years). Where the joint account is held by spouses or civil partners (or by a parent and an adult child) who make unequal contributions, there is a legal presumption that could apply to deem the transferred funds as held 50/50, but this presumption is generally weak and is due to be abolished by the Equality Act 2010 (once the relevant section of that Act is in force).
It would therefore be helpful for joint account holders who make uneven contributions to their account to put in place a declaration of trust to document the beneficial ownership of the funds in the account, if they want to ensure that these are held equally for IHT purposes. This is particularly important for those who are not married or in a civil partnership as the IHT spouse/ civil partner exemption will not apply on the death of the first account holder.
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