Joint account: Whose interest?

By | 12 April 2022

Bank or building society accounts are often held in the joint names of two or more family members. As a general rule, the person liable for tax on the interest credited is the person receiving or entitled to the interest.

Spouses (and civil partners)

However, where jointly held property is in the names of spouses living together, they are treated for income tax purposes as beneficially entitled to the income in equal shares.

This ‘50:50 rule’ is subject to various exceptions. For example, where spouses are beneficially entitled to both the income and underlying asset in unequal shares (e.g., 70:30), if a valid joint declaration is submitted to HMRC within 60 days, each spouse is taxed on the income according to their beneficial entitlement (i.e., 70:30 in this example), not the 50:50 basis. The joint declaration is usually made on Form 17 (available on the website).

The declared split of income applies from the date of the declaration (until permanent separation, divorce or death, or a change in the beneficial interest of either spouse in either the asset or the income). In practice, the couple can end the declaration by making a small change in beneficial entitlements (e.g., by making a gift which changes their beneficial interests from 70:30 to 60:40).

Other family members

Another exception to the general rule above is where the ‘settlements’ anti-avoidance rules apply. Those rules broadly treat income from a settlement as the settlor’s for income tax purposes if they retain an interest in the settlement.

A ‘settlement’ could be (say) a joint bank account, and the ‘settlor’ could be one of the joint account holders (e.g., a family member who provided the funds in the account).

In Bingham v Revenue and Customs [2013] UKFTT 110 (TC), the taxpayer (B) placed funds into accounts in the joint names of himself, his wife and children. B was the sole provider of the funds. B apportioned interest so that each account holder could utilise their personal allowances and lower rate income tax bands. The intention was that the monies in the accounts could be used by any of the children, although Bs name remained on the accounts, and he was a signatory.

HMRC raised income tax assessments on B. The First-tier Tribunal accepted that B intended the monies in the accounts to be a ‘family fund’ from which any joint account holder (except B himself) could draw. However, the tribunal considered that in legal terms this arrangement was an informal family settlement, of which B was the settlor. The tribunal concluded that B retained an interest in the funds, so was liable to tax on all the interest.

Is there a trust?

There is also the legal concept of a ‘resulting trust’. For example, if a parent provides 100% of the funds in a joint bank account held with adult offspring, there is generally a presumption that the funds will ‘result’ (i.e., revert) to the parent. Consequently, the parent would be taxable on 100% of the interest earned.

However, this presumption can be rebutted if there is evidence to the contrary. For example, if there was proof that the parent intended to gift 50% of the funds to their offspring, the presumption of a resulting trust is displaced, and each account holder would generally be taxable on interest based on their beneficial ownership of funds in the account (i.e., 50% each).

Practical point

HMRC’s Trusts manual provides numerous examples of joint accounts (see TSEM9947 onwards).

The above article was first published by Tax Insider (May 2021) (