IHT & Joint bank accounts – Matthews v HMRC [2012] UK FTT 658

 In Tax

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This is another case about the correct IHT treatment of the interest of a deceased person in a joint bank account on death and whether there may be a gift with reservation of benefit (GROB).

The facts

Mary Jean Matthews died on 19 January 2007. She was a widow at the time of death. She and her late husband farmed together in partnership. Their son John was her executor and he appealed against a Notice of Determination in relation to IHT levied on the whole of the monies held in a joint account at the Abbey National which he operated in his and his mother’s names.

Mary inherited a sum of money from her father and invested it in an account in her sole name at what was the Abbey National. On 30 October 1999 she decided to open a new account with her son by withdrawing the whole of the monies from her account in her sole name and putting them in the new joint account – the sum was £94,473.16. Included in the special instructions for operation of the account were the words “either signature”. It was agreed that this meant either he or his mother could withdraw monies from the account without the signature of the other.

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For the period from 30 October 1999 to 14 April 2005 (the date of the last extracts provided to the Tribunal) no withdrawals were made from the account and only credits of interest or small bonuses were made. HMRC accepted that between 15 April 2005 and Mary’s death the only monies added were payments of interest and again no withdrawals took place.

John claimed and it was accepted that he and his mother each put one half of the interest on their respective annual tax returns. He also claimed that Mary intended by her action to give him one-half of the monies on the account and that he could have withdrawn any or all the money on the account at any time if he so wished but he had no need to do so. There was no written evidence or otherwise to support this contention.

In filling out the IHT return John had incorrectly said that Mary had not made any gift or other transfer of value since 18 March 1986 but then said she did hold the bank account referred to above in joint names; that she provided all the funds and that the account balance passed to him by survivorship. He showed the deceased’s interest in the balance on the account as one half of the total sum standing to the credit of the account on Mary’s death.

The law

HMRC argued that the whole of the balance on the account was taxable under s.5(2) IHTA 1984 which provides that a person is beneficially entitled to property or money over which they have a general power of appointment enabling them to dispose of it as they think fit.

This has been interpreted in Melville v IRC [2001] EWCA 1247 to be a clear example of a provision in the IHT regime which produces double taxation – namely the same property, the money in the account, being taxable on the death of each holder.

In the alternative HMRC argued that there had been a GROB, relying as usual on s.102 FA 1986 provisions, with the gift in this case being a chose in action consisting of the whole account. On that basis it was claimed that John had not acquired possession of the account and it had not been enjoyed to the entire exclusion of the deceased.

For John it was contended that there was a tenancy in common of the whole account and that Mary had made a gift to him of one half the account arguing that Mary had no right to withdraw more than half the account the possession and enjoyment of which had passed to John which was evidenced by their treatment of the income for income tax purposes.

The decision

The Chairman of the Tribunal analysed what type of joint account had been opened – one where the deceased retained ownership of the funds and no gift is made until death; or at the other end of the spectrum is a tenancy in common with each joint holder having separate ownership of a separate share in the account.

In this case it was inconsistent to argue for tenants in common ownership whilst at the same time on the IHT return saying the monies wholly accrued to John by survivorship. Although the Tribunal did not necessarily expect written documentary evidence of intention when the co-owners were mother and son they did expect some consideration having been given to this which was not apparent from John’s evidence.

It was concluded that either Mary or John without reference to the other could have withdrawn the whole of the balance on the account at any time and therefore the Tribunal agreed with HMRC that s.5(2) IHTA 1984 applied to the account. This was the same conclusion reached in Sillars v IRC [2004] SpC 10, in which it was also said

“The account was held beneficially as joint tenants. The gift was of a chose in action consisting of the whole account, not one half of the initial balance. It follows that possession and enjoyment of the account had not been assumed by [the co-owner] because the deceased was still entitled to a share; and nor had it been enjoyed to the exclusion of the deceased and of any benefit to her as all benefits from the account were enjoyed by the deceased.”

Accordingly the Tribunal determined that the whole of the balance on the joint account should have been returned for IHT purposes on Mary’s death.

Practice points

  • Clients who transfer accounts into the joint names of themselves and another for the convenience of having bills paid and money withdrawn must be advised that a simple joint account will not be regarded as having made a gift of one half.
  • Unless specifically opened as such it will not be a trust account
  • The full balance on the account at death will be regarded as belonging to the person supplying the funds
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