Whether it’s paying for household bills or the weekly shop at the supermarket, joint bank accounts are one of the most popular and convenient ways of ensuring costs are shared.
Each owner of a joint bank account has the full right to withdraw and deposit money, and otherwise manage the account’s funds at any given time.
Despite the clear benefits, there are also several problems and complications of having a joint bank account. This guide will take a look at some of the most common issues people have to deal with.
Who Owns What?
As mentioned above, everyone named on an account can pay money in or take it out. Once it’s been deposited, the money belongs fully and equally to each account holder, regardless of the source.
It’s worth noting that some banks may label one person as the “primary account holder”, but this doesn’t mean that they own any more than any of the other account holders.
Once the account has been opened, any account holder has the power to close the account at any time. Therefore, it’s always recommended to only put money into a joint account if you have a great deal of trust in the other account holders.
Moreover, an account holder is unable to remove fellow account holders from their joint account. The bank will almost always require consent from all parties. This similarly applies if one account holder is trying to withdraw the entire account balance in one transaction.
What Happens If An Account Holder Dies?
The majority of joint accounts have a “right of survivorship” where if one account holder passses away, the remaining funds go to the surviving account holders in equal portions.
So, for joint accounts with just two people, the surviving account holder will receive the entirety of the funds in the account.
However, some joint accounts operate under a different system which is termed “tenancy in common”. When an account holder passes away under this ruling, their equal share of the joint account goes to their estate.
The survivor will receive half of the balance, while the other half is distributed according to the will of the deceased.
Whatever the circumstance, the surviving account holder will need to present a copy of the decedent’s death certificate to the bank. This provides sufficient evidence, allowing the bank to retitle the account in the survivors’ names.
Tax Issues
As noted earlier, spouses and civil partners commonly hold joint bank accounts together. While they are both alive, interest from the account is typically taxed 50/50. This is because they are treated as owning the funds of the account in equal shares.
If, however, the funds are owned in unequal shares, they will have to make a joint declaration to be taxed according to their beneficial interests. Without this declaration, both members will still be taxed on a 50/50 basis.
As noted earlier, spouses and civil partners commonly hold joint bank accounts together. While they are both alive, interest from the account is typically taxed 50/50. This is because they are treated as owning the funds of the account in equal shares.
If, however, the funds are owned in unequal shares, they will have to make a joint declaration to be taxed according to their beneficial interests. Without this declaration, both members will still be taxed on a 50/50 basis.
After a death, HMRC will pay close attention to an account, especially if there’s a substantial amount of tax at stake. Accounts held by spouses or civil partners aren’t usually their priority however, as the funds leftover are normally 100% exempt from inheritance tax.
On the other hand, joint accounts held by unmarried couples or other combinations of people are subject to a great degree of scrutiny. This is because it’s significantly more difficult to figure out how much tax is due and exactly who’s liable for it.
Beneficiaries
Beneficiaries are another important factor to take into account after the death of an account holder.
A beneficiary will receive all of the money in a joint bank account upon the passing of all account holders. An account’s beneficiaries can be changed at any point by a living account holder.
It’s worth remembering, that in a joint account organized under the “right of survivorship” system, all of the funds go to the surviving account holder.
By contrast, a joint account with “tenancy in common” allows each account holder to pass their share of the funds directly onto their beneficiaries in the event of death. This prevents any changes to the allotment of funds after a passing.
