The recent case of Matthews v HMRC TC 2329 reviewed the inheritance tax implications of a joint bank account.
The deceased transferred £94,000 to a joint account with her son and on her death HMRC claimed that the full amount of the account formed part of her estate. She was free to draw the whole amount if she wished (and so was her son) - that is the nature of a joint account. This represented a general power within Section 5(2) IHTA 1984 enabling her to appoint or dispose of the property as she thought fit.
Interestingly, reference was made to a passage in Melville where the Court of Appeal said:
"A clear example of a provision of the inheritance tax regime that produces double taxation is … the very common case of a joint bank account which permits any holder to draw on that account. The same property, the monies in the account, is under Section 5(2) taxable on the death of each holder."
Despite this clear statement, it is explained in the Revenue Manuals that HMRC would not seek to charge inheritance tax on the account twice but would attribute the account to the person who provided the funds. (That is all very well, but it does not deal with the growth in value of the fund - to whom is that attributed?)
Various issues arise here (not least the question of the doctrine of advancement) but it seems to me that the reservation of benefit point is overwhelming. Mrs Matthews could hardly claim that she was entirely (or virtually) excluded from any benefit from the account. She put the money into the account and she was free to draw all of it. Whether this was a gift of the whole, or half, of the account to her son, she retained dominion over the account and was not excluded from benefit from any part of it. This was clearly a gift with a reservation and the funds in the account remained in the estate.
Joint accounts are very useful things, but their utility is rather limited when it comes to inheritance tax.