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Joint Bank Account (Estate Treatment)

Definition

A joint bank account is a bank account held by two or more people where, in England and Wales, the surviving account holder(s) automatically inherit all the money when one account holder dies.

This automatic transfer is called the right of survivorship. It happens regardless of what the deceased's will says and without needing to wait for probate.

What Does Joint Bank Account Estate Treatment Mean?

Most joint bank accounts in England and Wales operate as "joint tenants"—a legal ownership structure where all account holders own the money equally together. When one account holder dies, the right of survivorship automatically transfers full ownership to the survivor. The deceased's executor doesn't administer this transfer, and the money doesn't require a grant of probate to access. The survivor simply provides the bank with a death certificate, and the account becomes theirs alone.

This creates an unusual legal situation that confuses many people. The money passes outside the administrative estate (what executors handle through probate) but remains inside the taxable estate for inheritance tax purposes. According to HMRC guidance (IHTM15042), each account holder is regarded as beneficially entitled to the proportion of the account attributable to their contributions. If Sarah and David jointly own an account with £40,000 and contributed equally, David's £20,000 share counts toward his estate for inheritance tax when he dies—even though Sarah automatically becomes sole owner and the money never goes through probate.

For married couples and civil partners, this distinction usually doesn't matter financially because the spousal exemption means no inheritance tax applies to transfers between spouses, regardless of amount. However, unmarried couples face full inheritance tax exposure. If James and Sophie (unmarried) have a joint account with £12,000 and James contributed £7,000, that £7,000 forms part of James's estate. If his total estate exceeds £325,000, inheritance tax at 40% applies to the amount over this threshold.

HMRC actively scrutinizes what it calls "convenience accounts"—situations where one person provided all the funds but added another person's name for practical reasons. When Margaret adds her daughter Emma to her £85,000 savings account "so Emma can help with bills," Emma legally inherits everything when Margaret dies. But HMRC may include the full £85,000 in Margaret's estate for inheritance tax, not just half, because Margaret contributed all the funds. This distinction between legal ownership (both names on the account) and beneficial ownership (who actually owns the money) can create significant tax bills.

An alternative exists for those who want different treatment: tenants in common. This ownership structure allows each person to own a specified share that passes through their will rather than automatically to the co-owner. However, most UK banks default to joint tenants unless specifically instructed otherwise, and changing the ownership structure requires formal documentation.

Important jurisdictional note: These rules apply to England and Wales. Scotland has different rules under Scots Law where the survivorship destination in joint accounts does not automatically transfer ownership to the survivor. Scottish joint accounts typically pass according to the deceased's will or intestacy rules, not through automatic survivorship.

Common Questions

"What happens to a joint bank account when one account holder dies?" In England and Wales, joint bank accounts usually operate with the right of survivorship. This means the surviving account holder automatically becomes the sole owner of all money in the account, regardless of what the will says. The money passes outside the estate and doesn't go through probate, though it may still count toward inheritance tax.

"Do I need to include joint bank accounts in my will?" You cannot give away your share of a joint bank account held as joint tenants in your will because it automatically passes to the surviving account holder. However, if the account is held as tenants in common (less common), you can leave your specified share to someone in your will.

"Can HMRC challenge who contributed money to a joint bank account?" Yes, HMRC can investigate joint accounts for inheritance tax purposes based on who actually contributed the funds. If the deceased provided all the money but added someone else's name for convenience only, the entire account value may be included in the deceased's estate for inheritance tax calculations, even though it passes to the survivor.

Common Misconceptions

Myth: If a joint bank account passes directly to the survivor, it doesn't count toward inheritance tax.

Reality: While joint accounts bypass probate and pass automatically to the survivor, the deceased's share is still included in the estate valuation for inheritance tax purposes. You may need to pay inheritance tax if the total estate exceeds £325,000, even though the money transferred automatically.

Myth: Adding my child's name to my bank account means they automatically get half the money tax-free.

Reality: HMRC looks at who actually contributed the funds, not just whose names are on the account. If you provided all the money and added your child's name "for convenience," HMRC may include the full account value in your estate for inheritance tax, even though your child legally inherits it all. This is called a convenience account, and HMRC actively scrutinizes these arrangements.

  • Joint Tenants: The specific legal ownership structure that creates survivorship rights in joint bank accounts.
  • Tenants in Common: The alternative ownership structure that allows joint account holders to leave their specified share via will.
  • Survivorship: The legal mechanism by which joint account ownership transfers automatically to the remaining account holder(s).
  • Estate: Joint accounts pass outside the administrative estate but remain inside the taxable estate for inheritance tax.
  • Executor: Executors must value joint accounts for inheritance tax returns even though they don't administer the transfer.

Need Help with Your Will?

Understanding how joint bank accounts work helps you make informed estate planning decisions. Joint accounts affect what assets you can control through your will and may have inheritance tax implications for your beneficiaries.

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Legal Disclaimer:

This article provides general information only and does not constitute legal or financial advice. WUHLD is not a law firm and does not provide legal advice. Laws and guidance change and their application depends on your circumstances. For advice about your situation, consult a qualified solicitor or regulated professional. Unless stated otherwise, information relates to England and Wales.