There is often a misconception that when one of the joint beneficial owners of an asset dies, their share automatically passes to the other joint owner(s) outside the terms of their will, and therefore falls outside their estate for inheritance tax (IHT) purposes, says Tax Tips and Advice.
In fact, the value of all assets – including any that are jointly owned – are taken into account, and that includes joint bank accounts.
If you want to pass capital in a bank account to a relative or friend and avoid IHT, you should simply give it to them without any strings attached. Provided you live for a further seven years, the gift will class as a ‘potentially exempt transfer’ and be tax-exempt.
Should you wish to retain, say, the interest on the capital for yourself during your lifetime (or indeed a greater, or lesser sum), “there’s nothing to stop the person you gave the money to making gifts back to you on a regular basis”.
The key is that there “must be no agreement giving you a right to receive the payments” – and, of course, that you trust the person you are making the gift to.