Are Joint Names Bank Accounts included in the estate and inheritance tax calculation on death?
In general terms, HMRC does consider joint bank account balances to form part of the estate on death. That said, this depends on how the bank account is set up.
Married Couples/Civil Partnership
Gifts between spouses on death are free of inheritance tax anyway, so it is not a problem whether the legal structure of the account had a Right of Survivorship or not.
Joint Bank Account with Right of Survivorship
A right of survivorship means that all named account holders have a ‘joint tenancy’ on the account. This means that everyone owns the whole bank account jointly and severally. On death, the survivor already owns the whole bank account already, so the bank account name is simply transferred to the name(s) of the survivor(s) and the deceased’s name is removed. This means the bank account balance does not form part of the deceased’s estate. It is usual in the UK when we own property or have a joint bank account that they have the Right of Survivorship.
Joint Bank Account with No Right of Survivorship
If there is no right of survivorship on the account, then the whole bank balance is included in the account holder’s estate for inheritance tax calculation. This is uncommon in the UK, but there may be some bank accounts with no Right of Survivorship. If the deceased hold bank accounts overseas, there may be no Right of Survivorship and the whole balance would again be included for someone who is domiciled in the UK.
Gift with Reservation
If the deceased had gifted the money to a joint bank account but had in place clauses to reserve the benefit to them and restrict access by other account holders, then this would be deemed a ‘gift with reservation’ and the bank balance would be included in the deceased’s estate.
Inheritance Tax Planning with Right of Survivorship
Right of Survivorship clearly presents inheritance tax saving opportunities as we now know a joint names UK bank account with your children with automatic rights of survivorship is outside your estate. In addition, as well as any gifts made where we must live for 7 years after the gift, there is also the opportunity for gifts from normal income into a joint names bank account which are instantly outside the estate on death.