Problems with joint accounts


Nick Palmer

In their later years, many parents choose to add a child’s name to their bank account, or open a joint account, into which the parent transfers the opening balance.

There can be several practical advantages to this: either of you can access this, it is a convenient way of paying shared outgoings, your child can continue to access the account after you have died.

However, are you storing up problems for the future? Consider the following: Who does the money belong to? What is the inheritance tax position? What if you fall out? Who is liable to income tax on the interest? Who inherits the balance if either of you dies?

The last point above has been examined in the Courts recently. Consider the separate cases of Mr Aroso and Mrs Northall.

Mr Aroso opened a joint account with his nephew Jose and paid a substantial sum into that account. Similarly, Mrs Northall opened a joint account with her son Christopher and paid the sale proceeds from her home into that account.

After each of Mr Aroso and Mrs Northall died, both Jose and Christopher claimed they were solely entitled to the account which had been held jointly. They each claimed the account passed to them by survivorship. However, whilst Jose won his case, Christopher lost. The crucial issue was that Jose provided clear evidence from the bank that his uncle knew the account would pass to Jose if he died.

Although Mrs Northall had signed a bank form stating similarly that the joint account would pass to Christopher on her death, he could not persuade the Court that this had been explained to her.

Concerning Inheritance Tax, HMRC have made it clear that in these circumstances they will charge inheritance tax on the whole balance when the parent dies, and that if the child has made withdrawals from the account, HMRC may also charge inheritance tax on these.

Furthermore, if the child should die first, HMRC may also charge inheritance tax on the whole balance at that time.

This is certainly a win-win scenario for HMRC.

 So here are a few basic rules:

  • If you want your child to operate your account, then grant them power of attorney.
  • If you want to give money to your child, then do so ‘cleanly’ – you should sign the cheque/authorise the payment and the money should be paid into an account in your child’s sole name.
  • If you really want to have a joint account with your child, then think what your intentions are as to who owns the money in the account, record your wishes in writing and review your Will.

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