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Ok. Got itLearn about the differences between joint and co-ownership of international bank and investment accounts.
What is the difference between joint and co-owned international bank and investment accounts?
Several South African tax residents hold international bank and/or investment accounts, like the Nedbank Private Wealth International Focus Account, in joint names. It is important to understand the impact of joint bank and/or investment accounts under the laws that apply in the countries where they are held, including South Africa.
The difference between joint and co-ownership
It is necessary to distinguish between the concepts of joint- and co-ownership. Although they are often used interchangeably when referring to two or multiple persons holding one asset, they are quite different. Generally, the concept of joint ownership is used in the international context, while co-ownership is more commonly used in South Africa.
An international account in joint names is easy to administer after the death of one person
As an example, when holding a joint Nedbank Private Wealth International Focus Account, the ‘right of survivorship’ is invoked in the relevant jurisdiction eg, the United Kingdom,the Isle of Man or Jersey. This means that, at this stage, the account must be transferred to the surviving joint holder(s) on receipt of a copy of the death certificate of the deceased joint holder without the account being frozen or the need to obtain probate in the specific country (which could be a costly and lengthy exercise).
In a joint account, both owners are entitled to 100%
It is important to understand that from an ownership perspective, each joint accountholder is entitled to 100% of the account and therefore any one of them may, during their lifetime, access or provide instructions relating to the account without the consent of the other joint accountholder(s). However, joint ownership is generally not recognised or allowed in South Africa. The most likely reason for this is that there is no legislation specifying what will happen to the asset if one of the joint accountholders dies or becomes insolvent, which can lead to conflicting demands from the surviving joint accountholder(s) and the executor of an estate or creditor. Accordingly, for South African legal and tax purposes, joint accountholders of an international account are regarded as co-owning the account, which means each accountholder is regarded as owning an equal share (not 100%) in the account.
Co-ownership of an international account by South African tax residents may result in unforeseen tax consequences, illustrated by the following examples:
Example 1: Principal holder (husband) adds his spouse as a joint accountholder
Assume the international account includes cash and equities to the value of £300 000 and that the spouse has not made any contributions to the account. Also assume that they are married out of community of property, without accrual.
Husband | Wife | ||
Ownership | 50% | 50% (acquired either by donation or loan, interest-free or interest-bearing) | |
Tax on adding a joint holder | Donation | Exempt for donations tax and capital gains tax (CGT) | None |
Loan | Exempt for CGT | None | |
Tax on income and gains in the account during lifetimes | Donation | 100% – if attribution rules apply (where the sole or main purpose of the donation is tax avoidance) 50% if attribution rules do not apply |
None 50% if attribution rules do not apply |
Loan | 50% | 50% | |
Tax on the death of a joint holder (first dying) | Donation | 50% of account included for estate duty CGT in respect of 50% of the equity portion |
50% of account included for estate duty CGT in respect of 50% of the equity portion |
Loan | 50% of the account plus the value of the loan at the time (eg £150 000) included for estate duty CGT in respect of 50% of the equity portion |
50% of the account less the value of the loan at the time (eg £150 000) included for estate duty CGT in respect of 50% of the equity portion |
Example 2: Principal holder (father) adds his three children as joint accountholders
Assume the international account includes cash and equities to the value of $400 000 and that the children have not made any contributions to the account.
Father | Children | ||
Ownership | 25% | 25% each (acquired either by donation or loan, interest-free or interest-bearing) | |
Tax on adding joint holders | Donation | Donations tax and CGT | None |
Loan | CGT | None | |
Tax on income and gains in the account during lifetimes | Donation | 100% if attribution rules apply (minor children) 25% |
None 25% |
Loan | 25% | 25% each | |
Tax at the death of a joint holder (first dying) | Donation | 25% of account included for estate duty CGT in respect of 25% of the equity portion |
25% of account included for estate duty each CGT in respect of 25% of equity portion each |
Loan | 25% of account plus the value of the loan at the time (eg $300 000) included for estate duty CGT in respect of 25% of the equity portion |
25% of account each less the value of the loan at the time (eg $100 000 each) included for estate duty CGT in respect of 25% of equity portion each |
Example 3: Joint holders A and B who are siblings, each contributed 50% to their international account. Joint accountholder A decides to contribute a further £100 000 in cash.
Assume the international account, before the further contribution, included cash and equities to the value of £300 000.
Joint Holder A | Joint Holder B | ||
Ownership | 50% | 50% (further £50 000 acquired either by donation or loan, interest-free or interest-bearing) | |
Tax on further contribution | Donation | Donations tax and CGT | None |
Loan | CGT | None | |
Tax on income and gains in the account during lifetimes | Donation (attribution rules do not apply) | 50% | 50% |
Loan | 50% | 50% | |
Tax at the death of a joint holder (first dying) | Donation | 50% of account included for estate duty CGT in respect of 50% of the equity portion |
50% of account included for estate duty CGT in respect of 50% of the equity portion |
Loan | 50% of the account plus the value of the loan at the time (eg £50 000) included for estate duty CGT in respect of 50% of the equity portion |
50% of the account less the value of the loan at the time (eg £50 000) included for estate duty CGT in respect of 50% of the equity portion |
Additional complexities could arise in these examples, both from a tax and administrative perspective, should a joint accountholder:
How to minimise tax-related complexities To mitigate tax-related hurdles and have certainty on who will be responsible for the associated taxes during their lifetimes and after death, you could evidence of the actual ownership split between the joint accountholders of the account, which is, for example, based on their respective contributions to the account. This should further be supported by a written agreement between the joint accountholders specifying the envisaged ownership split and/or accurately reflecting the contributions made together with other supporting documents like bank transfers. It is recommended that this evidence is retained in a safe place, accessible to the executor appointed in the will of a joint accountholder.
We would recommend getting professional advice before deciding to appoint persons as joint accountholders on their international accounts
The following table summarises some of the advantages and disadvantages:
Advantages | Disadvantages |
Ease of estate administration
Accessed by joint holder(s)
|
Access by joint holder(s)
Regarded as equally owned by all joint holder(s) unless proven otherwise
|
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We connect you to so much more than great advice. We provide insights, technical expertise, global opportunities, and a wide range of solutions and services.