This site uses cookies. By continuing to browse the site you are agreeing to our use of cookies. To find out more about cookies on this website and how to delete cookies, see our privacy notice.
Analytics

Tools which collect anonymous data to enable us to see how visitors use our site and how it performs. We use this to improve our products, services and user experience.

Marketing

A bit of data which remembers the affiliate who forwarded a user to our site and recognises orders from those who become customers through that affiliate.

Essential

Tools that enable essential services and functionality, including identity verification, service continuity and site security.

Enrol now on the free landlord tax strategies course


To enrol in the 7 tax saving strategies email course complete the form below. The first module will be emailed to you immediately.

Enrol now on the free landlord tax strategies course

Thank You!

Free Tax Saving Strategies Course
x
Save Thousands - For Free

Before you go, sign up to our free tax saving email course. Get 7 top property tax saving strategies in your email inbox that will help you save thousands in tax. Unsubscribe any time.

Email Course
The seven FREE property tax busting strategies course reveals the secrets of how to legitimately beat the taxman and boost your property profits!
View All Tax Articles View Tax Articles From:

It’s a trust – But not as we know it!


Mark McLaughlin looks at a case involving a trust where none of the normal formalities were undertaken, which almost resulted in a large tax bill.

Some individuals might assume that the creation of a trust necessarily involves a written document (commonly a ‘trust deed’ in England and Wales), which appoints the trustees, states the terms of the trust, and identifies the beneficiaries and the trust property that will be subject to the trust.

Bare trusts
However, it is well established (under English law) that a trust does not need to be in writing; it may be made orally. Trusts without formal documentation are relatively uncommon but are sometimes used, such as in the form of a bare trust. 

A ‘bare’ (or ‘simple’) trust is one in which the beneficiary has an absolute right to both income and capital of the trust. Assets in a bare trust are held in the name of a trustee(s) as nominee; the beneficiary has the right to the trust capital and income if (s)he has legal capacity (e.g. is not an infant).

In some cases, the fact that no formal trust documentation exists can cause difficulties, such as in terms of establishing that the bare trustee is not liable to tax on income generated from a trust asset. 

It’s not my asset!
For example, in Tang v Revenue and Customs [2019] UKUT 0081 (TC), HM Revenue and Customs (HMRC) opened an enquiry into the appellant’s tax position, based on information received that she had over $900,000 in an account in her name at a bank in Singapore. The appellant asserted that the funds were held by her as bare trustee for family members (i.e. her parents-in-law) resident in Hong Kong, so she had no tax liability in respect of it. HMRC issued discovery assessments for the tax years 2008/09 to 2015/16 on income and gains arising on the account and charged penalties for a deliberate failure to notify liability to tax for those years.

There was no trust document. HMRC’s view was apparently that no trust therefore existed. However, the First-tier Tribunal reviewed the evidence to see if it was consistent with the existence of a bare trust. There was no evidence that the appellant made withdrawals from the accounts. The appellant’s and her husband’s circumstances appeared to be quite modest. They lived in a house they purchased in 1998 for £73,000 with the help of a mortgage. 

The tribunal attached substantial weight to a statement made by the appellant’s parents-in-law that the funds were (and always had been) beneficially owned by them. The tribunal concluded (on the balance of probabilities) that the appellant held the funds in the bank accounts as trustee only on bare trust for her parents-in-law throughout the period in question. The appellant’s appeal was allowed.

Prove it
The disposal of an interest in land generally needs to be conveyed in writing, subject to certain exceptions (see LPA 1925, s 53).

In any event, evidence of the trust’s existence is generally important. HMRC guidance (in its Trusts, Settlements and Estates manual at TSEM9520) includes sample wording for a declaration of a bare trust, which HMRC states will ‘usually’ be acceptable. 

This is a sample article from the monthly Property Tax Insider magazine. Go here to get your first free issue of Property Tax Insider.