Inheritance Tax in Joint Bank Accounts - All you need to know
According to AS network’s experience in addressing tax audits many taxpayers have been faced with a donation, inheritance or income tax because the audit authority considered transactions in joint bank accounts to conceal a donation, inheritance or increase in wealth from an unknown cause.
The following text aspires to clarify, as simply as possible, the tax issues of joint banking transactions and potential traps for taxpayers.
In order to better understand the issues that arise, we will classify the so-called common accounts into the following categories:
- Joint bank accounts of Law 5638/1932.
- Indivisible or unified accounts of Act 2961/2001 (Code of Inheritance Tax).
- Joint accounts in foreign banks.
Joint Bank Accounts of Law 5638/1932 are those accounts which include a condition that each co-beneficiary can use it without the involvement of the others. Article 2 of that law provides: 'Such deposits may additionally include the condition that, upon the death of any of the beneficiaries, the deposit shall automatically passes to the remaining ones until the very last one of them. In this case the deposit shall be given to them free of any inheritance tax or other charge. On the other hand, this exemption does not extend to the heirs of the last remaining beneficiary'.
This means that in the event of the death of a joint account beneficiary, the other co-beneficiaries take proportionate share, while the heirs of the deceased cannot claim their share.
It should be noted that if the co- beneficiary is also an heir, there is no question of inheritance tax, but also no exemption from the obligation to submit a heritage tax return. This follows from the combination of the provisions of article 61 par. 10 of law 2961/2001 and circular POL 1274/30/11/2001.
In tax audits, particularly of remittances abroad, the audit authority distributes the joint bank account proportionally to the co-beneficiaries, and it is up to the audited taxpayer to prove by any appropriate means a claim of different individual proportion.
Indivisible or unified accounts are joint accounts opened by at least two persons who must join in order to make withdrawals (Article 10 of Law 2961/2001).
These accounts are not covered by Law 5638/1932 and therefore may be subject to inheritance or donation tax as the case may be. The co-beneficiaries are taxed as having equal parts in these accounts, but both the audit authority and the audited taxpayers may prove otherwise.
Joint accounts in foreign banks
As tax audits have shown, the tax authority’s position is that these accounts are not covered by Law 5638/1932 and in the event of the death of a co-beneficiary, the remaining ones may be required to pay inheritance tax in Greece.
Also, in many cases the audit authority requires that the source / origin of the money deposited in these accounts be justified and raise issues of unjustified increase in wealth.
In view of the above, taxpayers who are co-beneficiaries of joint accounts with foreign banks should consider becoming subject to the Statutory Disclosure of Income of Law 4446/2016, also taking into account the upcoming "Automatic Information Exchange", meaning that the Audit Authority will soon have Greek depositor data in foreign banks.
G. Samothrakis, Tz. Panou
Posted on Sunday newspaper Kathimerini, 10/09/2017