Mortgage Rate Rises
- Thread starter glenimp617
- Start date
Thanks, it's paywalled, but I managed to use the term "jointly gifted assets" to find another webpage that talks about it. Basically half of the amount would become taxable.
Not necessarily.
Stephanie Court, Private Client Tax Director at RSM UK
The gift of cash to a grandchild is reflected in the principles of IHT through the concept of a transfer of value. A transfer of value, put simply, is a disposition made by a person as a result of which the value of their estate has decreased.
The starting point therefore is to determine the amount of the property which would be reflected in the donor’s estate before the transfer, and the loss to that estate after the transfer. The loss to the estate is the value of the gift.
If there has been a gift of cash, the value transferred is easy to determine, but in the case of a joint bank account, applying the IHT provisions to determine the value transferred by each party is more difficult. How do you determine what proportion of the joint account each party is beneficially entitled to, and therefore how much of that joint account forms part of their estate from which the loss of value occurred?
Joint property is a common term for arrangements under which beneficial entitlement to assets is shared between two or more people. Usually, the assets will be held in the joint names of these people, for example a joint bank account or a jointly owned home. The beneficial entitlement to a house may sometimes be defined as a specific percentage in the deeds, but the beneficial entitlement of one of the holders of a joint bank account is rarely defined in the same way.
It may be reasonable to assume that the beneficial entitlement to a joint bank account is split equally between the account holders, but this is not strictly the case. HM Revenue & Custom's (HMRC's) guidance states that each holder of a joint account is normally regarded as beneficially entitled to the proportion of the account which is attributable to their contributions to it. This is the case even where both bank account holders have complete access to withdraw all the funds. Therefore, if one party contributed all the funds, the whole balance of the account is included in their estate, and consequently none of the balance is included in the estate of the other joint holder.
Withdrawals made by person A from the funds provided by person B could therefore be treated as lifetime transfers. Where joint accounts are held by spouses or civil partners, this is usually of no consequence as transfers between spouses or civil partners are generally specifically exempt from IHT. However, where a transfer of value occurs and no exemption is available that transfer may become a chargeable transfer, for example if the donor does not survive seven years from the date of the gift. The loss in value of the estate of each joint bank account holder may then become relevant.
Therefore, in answer to the original question, how the IHT on a joint gift of cash is accounted for, depends on the beneficial entitlement of either party to the funds, based on how much either party contributed to the account.
At this point, it is worth stating that a gift using the annual exemption of £3,000, the small gifts exemption of £250, or gifts in anticipation of marriage or civil partnership allowance of up to £5,000 per child or £2,500 per grandchild, would all be exempt. Furthermore, gifts representing normal expenditure out of income may also be immediately exempt, and where a gift qualifies for this exemption, there is no monetary limit on it.
In calculating the IHT charge on death, the nil rate band amount (currently £325,000) is set against chargeable lifetime gifts in priority to the assets comprised in the deceased’s estate, and in priority order against the earliest gift first. Therefore, if any part of the gift is not exempt, it may be within the nil rate band so not be subject to an IHT charge.
HMRC’s internal guidance (IHTM15042) goes on to say that the true legal position in establishing a beneficial share of a joint bank account based on contributions to the account is far from clear, and that officers should avoid enquiring into the split in ownership unless the amount of tax at stake is substantial. This highlights how complicated the position can be.
If the gift is substantial, it would be sensible to record that a gift is being made and the value of it, and to make clear the amount being gifted by each of the donors. This is to provide reasonable evidence to help ease future complications in determining the IHT position should either donor not survive for seven years.
The gift of cash to a grandchild is reflected in the principles of IHT through the concept of a transfer of value. A transfer of value, put simply, is a disposition made by a person as a result of which the value of their estate has decreased.
The starting point therefore is to determine the amount of the property which would be reflected in the donor’s estate before the transfer, and the loss to that estate after the transfer. The loss to the estate is the value of the gift.
If there has been a gift of cash, the value transferred is easy to determine, but in the case of a joint bank account, applying the IHT provisions to determine the value transferred by each party is more difficult. How do you determine what proportion of the joint account each party is beneficially entitled to, and therefore how much of that joint account forms part of their estate from which the loss of value occurred?
Joint property is a common term for arrangements under which beneficial entitlement to assets is shared between two or more people. Usually, the assets will be held in the joint names of these people, for example a joint bank account or a jointly owned home. The beneficial entitlement to a house may sometimes be defined as a specific percentage in the deeds, but the beneficial entitlement of one of the holders of a joint bank account is rarely defined in the same way.
It may be reasonable to assume that the beneficial entitlement to a joint bank account is split equally between the account holders, but this is not strictly the case. HM Revenue & Custom's (HMRC's) guidance states that each holder of a joint account is normally regarded as beneficially entitled to the proportion of the account which is attributable to their contributions to it. This is the case even where both bank account holders have complete access to withdraw all the funds. Therefore, if one party contributed all the funds, the whole balance of the account is included in their estate, and consequently none of the balance is included in the estate of the other joint holder.
Withdrawals made by person A from the funds provided by person B could therefore be treated as lifetime transfers. Where joint accounts are held by spouses or civil partners, this is usually of no consequence as transfers between spouses or civil partners are generally specifically exempt from IHT. However, where a transfer of value occurs and no exemption is available that transfer may become a chargeable transfer, for example if the donor does not survive seven years from the date of the gift. The loss in value of the estate of each joint bank account holder may then become relevant.
Therefore, in answer to the original question, how the IHT on a joint gift of cash is accounted for, depends on the beneficial entitlement of either party to the funds, based on how much either party contributed to the account.
At this point, it is worth stating that a gift using the annual exemption of £3,000, the small gifts exemption of £250, or gifts in anticipation of marriage or civil partnership allowance of up to £5,000 per child or £2,500 per grandchild, would all be exempt. Furthermore, gifts representing normal expenditure out of income may also be immediately exempt, and where a gift qualifies for this exemption, there is no monetary limit on it.
In calculating the IHT charge on death, the nil rate band amount (currently £325,000) is set against chargeable lifetime gifts in priority to the assets comprised in the deceased’s estate, and in priority order against the earliest gift first. Therefore, if any part of the gift is not exempt, it may be within the nil rate band so not be subject to an IHT charge.
HMRC’s internal guidance (IHTM15042) goes on to say that the true legal position in establishing a beneficial share of a joint bank account based on contributions to the account is far from clear, and that officers should avoid enquiring into the split in ownership unless the amount of tax at stake is substantial. This highlights how complicated the position can be.
If the gift is substantial, it would be sensible to record that a gift is being made and the value of it, and to make clear the amount being gifted by each of the donors. This is to provide reasonable evidence to help ease future complications in determining the IHT position should either donor not survive for seven years.
Would IHT even be an issue for the estate?
If it's below the IHT threshold it won't matter either way.
The nill band rate is 350, but that can double if husband dies and leaves it to wife if she dies she has 350 too, and if the 'family home' is bequeathed to direct descendants, I think there's something like a further 150k relief against the value of the house.
So there's £850k IHT tax relief for a start.
If it's below the IHT threshold it won't matter either way.
The nill band rate is 350, but that can double if husband dies and leaves it to wife if she dies she has 350 too, and if the 'family home' is bequeathed to direct descendants, I think there's something like a further 150k relief against the value of the house.
So there's £850k IHT tax relief for a start.
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@jaybee Don't forget that transfers from one spouse to another are exempt from IHT and don't count towards the £325k nil rate band. So unless your potentially deceased parent leaves more than £325k including your gift to beneficiaries other than your remaining parent, there wouldn't be an IHT bill on your gift even if the 7 years haven't expired.
I may not have explained it very well sorry. I've used example/fictional amounts below (I can't remember now anyway)
1: My Mum received 100K in 2019 as inheritance from her father's estate when he died.
2: In 2020 I was gifted let's say 20K. I don't know if this was from Mum's account, Dad's account, or a joint one.
If one of them dies within 7 years, is the 20K taxable basically. I think yes.
1: My Mum received 100K in 2019 as inheritance from her father's estate when he died.
2: In 2020 I was gifted let's say 20K. I don't know if this was from Mum's account, Dad's account, or a joint one.
If one of them dies within 7 years, is the 20K taxable basically. I think yes.
Soldato
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removed as better answers than my limited knowedge
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Not likely. Everyone has a nil rate band of 325k to leave to whoever they want tax free, but spouses are exempt. So no unless the one that dies leaves more than 325k to beneficiaries other than the remaining parent, see my post a couple up. The only impact may be that the value of the nil rate band transferred to the surviving parent might decrease a little (see taper relief - likely 16% or 8% divided by 2 as it was a joint gift). Spouses can transfer unused nil rate band to the remaining spouse for a total of up to £650k (plus residential stuff mentioned by another posted).
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Not really as black and white as that. Even if the estate is more than 325k, there likely won't be any IHT to pay because it will likely mostly be transferred to the remaining parent and be exempt from IHT.
Soldato
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yeah i know, thats why i deleted my reply
Maybe they've added it onto the mortgage balance?
Soldato
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Almost definitely this.
If you remortgage with the same provider, will they charge a fee?
Don't know.
The HSBC app is poor. It only shows a list of payments in or out and only shows the current outstanding balance, not what the balance used to be. So I can't actually tell if it's been added to the balance. I don't think it has.
mine did, lower than new customers(999 vs 1499) but yeah it was added to balance..
Just checked using online full fat web account with balances, and I just realised it hasn't actually started debiting the new monthly amount yet, so guess it will all adjust beginning of next month. Fee will probably come through then and add to balance.
Growing number of homeowners in pandemic boomtowns owe more than homes are worth
People who bought homes during the pandemic may have a hard time making a profit or just breaking even if they choose to sell now
www.independent.co.uk
Hah that'll serve them. The market went absolutely stupid at that time.
Growing number of homeowners in pandemic boomtowns owe more than homes are worth
People who bought homes during the pandemic may have a hard time making a profit or just breaking even if they choose to sell now
Hah that'll serve them. The market went absolutely stupid at that time.
Yup no sympathy at all.
Soldato
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that is a bit harsh!. Did some people over stretch themselves a bit and not allow enough wiggle room for a rainy day (ie job losses) or allow for interest rate increases. Sure!.
but I still feel for those who are now in the stink. I am one of the fortunate ones who was able to get on the housing ladder and now, even facing job loss in a few months my home is pretty safe. (though there were a few years at the start where i was cutting it to the bone and things could have gone very wrong had i lost my job...........
But the reality is for some people, unless they take a huge leap of faith and gamble it all, they may never be able to get on the property ladder - which if i was in that boat i would find pretty depressing tbh.... esp when you are stuck paying rent which is higher than what a mortgage would cost.
but I still feel for those who are now in the stink. I am one of the fortunate ones who was able to get on the housing ladder and now, even facing job loss in a few months my home is pretty safe. (though there were a few years at the start where i was cutting it to the bone and things could have gone very wrong had i lost my job...........
But the reality is for some people, unless they take a huge leap of faith and gamble it all, they may never be able to get on the property ladder - which if i was in that boat i would find pretty depressing tbh.... esp when you are stuck paying rent which is higher than what a mortgage would cost.
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One couple round the corner like that here, they paid £600k for their house in 2022, now they want to move and the price is currently at £565k after 2 drops, I'm sure it'll drop again. If you ask me these houses are simply not worth that money.
I see other houses not selling either, prices are simply too high it seems and falling (very) slowly.
I see other houses not selling either, prices are simply too high it seems and falling (very) slowly.