This issue’s tech Q&A looks at inheritance tax and Junior ISAs
Q I have a mother and daughter who have a joint bank account. Please can you confirm the inheritance tax treatment? I would assume 50:50?
A If the account is owned on a joint basis by the mother and daughter, then should the mother die first, any amount held in the account will pass to the daughter under the laws of survivorship and vice versa. It is important to note, however, that the deceased’s share of the jointly owned asset will still form part of their estate for inheritance tax (IHT) purposes. With a joint account it is usually half the value which would need to be accounted for in the IHT return. Note that the amount will not pass exempt between the mother and daughter.
In this case, however, it is also important to point out that for IHT purposes, lifetime transfers from the joint account may occur when one of the holders withdraws funds from the account. According to HMRC’s guidance, a transfer of money into a joint account does not automatically involve any immediate gift of a beneficial interest. So, where one party (say, the mother) adds money to the joint account and the daughter withdraws the money for her own use, the mother is treated as having made a lifetime transfer for IHT at the time the daughter effects the withdrawal. However, should the mother withdraw the money for her own use, no lifetime transfer of value for IHT occurs.
Q When setting up a Junior ISA for a child, can both parents make contributions into the account? For example, the mother will be the registered contact, but the father would like to make regular contributions. Is this possible?
A Yes, it would be possible for both parents to pay into the Junior ISA for their child, provided total subscriptions in a tax year do not exceed the subscription limit of £9,000. It is important to note that the money will belong to the child and the child can take control of the account once they attain age 16 and can withdraw the money once they attain age 18.
Any payments made into the account will be treated as gifts for inheritance tax (IHT) unless specifically covered by an IHT exemption – for example, the annual exemption of £3,000 or by the normal expenditure out of income exemption. Although it should be noted that any amounts paid by a parent into a Junior ISA for their child will not be subject to the parental settlement provisions under section 629 Income Tax (Trading and other Income) Act 2005. As a reminder, these rules broadly apply if gross income exceeds £100 in a tax year from all gifts made by the same parent – the income is assessed on the parent(s) in respect of any beneficiary who is aged less than 18 and unmarried, or not in a civil partnership.