Inheritance tax question

[justasmalltownmum]

Hello
can someone help me with this scenario please:

if an adult child has a bank account with a parent, and the parent dies, is the account liable for inheritance tax?

thankyou

I would think it has to be declared as part of the estate

My understanding is that with a joint account normally it would be taken that each party is entitled to half of the money. so in this case usually half would be taken to belong to the child and the other half would form part of the dead parents estate.

There is an possible exception I think when the account has been funded only by one of the parties (for example if the account if funded solely by the parents pension and the child has been added to the account only to help the parent purchase items). In that case all the money should be assumed to belong to them.

Whether any IHT is due on that estate would depend on what other assets there were and to who they were left.

In the case of spouses having a joint bank account, if one dies, the other keeps all the money. I think it’s the equivalent of both account holders own all the money. A bit like joint tenants on an owned property.

it doesn’t form part of the estate in that instance.

edited to clarify the joint tenants comment.

The tax man will want to know where the money came from.

If the money was owned 100% by the parent and then the child was added (for example so they can help the aged parent) then it will all be part of the estate so liable for IHT. Otherwise bank statements will be used to determine the percentage deposited and therefore owned by the child.

Very few people pay IHT, it’s quite a high threshold before payment is due … usually a million.

This website says that a joint bank account does count towards IHT unless there is an exemption (e.g between spouses or civil partners where no IHT is due, or if held in trust for a child).

But that a joint bank account is not part of the estate subject to the Will. I.e the surviving owner of a joint account automatically becomes the owner of the balance in the account. So doesn’t form part of the estate to be distributed according to the Will.

www.protaxaccountant.co.uk/post/bank-accounts-and-inheritance-tax#:~:text=Spousal%20Exemption%20Reinforced%3A%20Spouses%20and,death%20of%20the%20first%20partner.

Half will need to be accounted for as part of the estate

@justasmalltownmum I have this set up with my parent. The money all comes from my parent and I am clear it will be declared as part of their estate for IHT purposes. Any IHT liability will be paid from the estate prior to distribution.

The question is how close to the IHT threshold is your parent?

As I understand it (having recently had to go through probate for my dead father, who left everything to my mother) you are correct in saying that funds in a joint account are automatically inherited by the survivor, as is a jointly owned property (regardless of any will).

But when completing an IHT form and applying for probate you still have to take account of half the money in the joint account and half the value of the property.