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A woman who shared a bank account with her son, but who did not give the money in the account to him absolutely, has left him with an Inheritance Tax (IHT) bill as a result.
The woman had opened a deposit account in the name of herself and her son, who was her executor. The account was opened in 1999 and contained more than £100,000 by the time she died. It was opened on an ‘either to sign’ basis, allowing either of them to withdraw sums from the account. Half of the interest earned on the account was included on the tax return of the woman and half on that of her son.
When she died, in 2007, a dispute arose regarding whether the amount in the deposit account at the date of her death was liable to IHT or not. Her IHT return included one half of the sum standing in the account, not the full amount.
The son claimed that his mother had intended to gift him a half share in the balance on the account. He could produce no evidence for that assertion, however.
HM Revenue and Customs (HMRC) claimed that the whole of the amount standing on the account was chargeable to IHT and should have been included on the woman’s IHT return. The half share could not be claimed to have been gifted as the woman had, up to the time of her death, the ability to withdraw the entire balance on the account. On that basis, HMRC claimed that ‘possession and enjoyment of the account had not been assumed’ by her son, nor had it ‘been enjoyed to the entire exclusion of the Deceased’. It therefore constituted what is termed a ‘gift with reservation’ and was to be treated as part of the woman’s estate for IHT purposes.
The First-tier Tribunal agreed with HMRC.
The case shows how important it is when disposing of assets in order to avoid IHT that the gift made is absolute and no interest in the assets gifted is retained by the person giving them away.