Joint account tax implications: a simple guide
What’s a joint bank account?
A joint bank account is one that’s shared between two or more people. Many people have joint accounts with a spouse, partner, housemate or relative. It can make paying things like bills much easier – plus you can save together in a joint savings account.
If you’re looking to bring your money together and make shared bills and budgets easier to manage, you can apply for a Monzo joint bank account online.
You’ll both need a regular Monzo account already, and after that it just takes a few minutes to set up a joint one.
How does a joint account work with income tax?
You get something called a Personal Savings Allowance, introduced in April 2016, which means that annual interest from bank accounts and savings accounts are tax-free up to £500 for higher-rate taxpayers. And £1,000 for basic-rate taxpayers.
When it comes to interest and joint accounts, usually interest will be split between both account holders, equally, and go towards each account holder's Personal Savings Allowances. This is the case even if one person puts more money into the account than the other. You can contact HMRC if you think the interest should be split differently.
Joint accounts and inheritance tax
When a joint account holder dies, the money in the account usually automatically passes to the surviving joint account holder. But whether or not you'll have to pay inheritance tax on joint bank accounts depends on your relationship with the person who's died.
If the money passes to a spouse or civil partner: the transfer will normally be exempt from inheritance tax.
If the money passes to someone else: things are a bit different. There could be inheritance tax to pay, depending on the size of the deceased person’s estate. Assets in a joint account are split between account holders based on how much each person contributed, so inheritance tax usually applies only to the deceased person’s share.
Understanding joint account tax implications
Taxes might not be the most exciting topic, but understanding how they work with your joint account can save you a lot of hassle in the long run. Here's a quick summary of what we've covered:
Income tax: the interest you earn on a joint account is usually split 50/50 between the account holders and, where relevant, can count towards your individual Personal Savings Allowances. Understanding the joint account tax on interest is important.
Inheritance tax: if you're married or in a civil partnership, you won't have to pay inheritance tax on the money in your joint account. If you're not, it depends on who put the money in. This is an important part of inheritance tax for joint bank accounts.
Before you open a joint account, it's always a good idea to have a chat with the other person about your financial situation and how you'll manage your money together. Being open and honest from the start can help you avoid any difficult conversations later on.
And here's a really important bit: when you open a joint account, you create a 'financial link' with the other person. This means credit reference agencies will connect your credit files, so what one of you does financially could affect the other's credit score when you apply for things like loans or mortgages down the line.
Find out more about how to apply for a Monzo Joint Account on our website.
You'll both need a Monzo account. Aged 18+. UK residents only. Ts&Cs apply.
Questions? Answers.
Who pays tax on joint account interest in the UK?
The interest is split equally between the account holders, and each person is responsible for paying tax on their share if it goes over their Personal Savings Allowance.
Are joint accounts subject to inheritance tax?
It depends on your relationship with the other account holder. If you're married or in a civil partnership, the money is exempt from inheritance tax. If not, it depends on who contributed the money to the account.
How is tax calculated on joint accounts?
For income tax purposes, the interest is usually split 50/50 between the account holders. For inheritance tax, it can depend on who contributed the money.
However, a Declaration of Trust can change this. This is a formal agreement that clearly sets out the ownership shares of the money in the account. It means your tax will be calculated based on your specific, agreed-upon arrangement, rather than standard assumptions.