Tribunal decides that a bare trust can exist without a trust deed
A taxpayer can be treated as holding money in a bare trust for a relative, even if no trust deed or other formal trust documentation can be produced, the First-tier Tax Tribunal has decided.
The individual concerned was an NHS midwife called Lily Tang, whose parents-in-law lived in Hong Kong. When HMRC learned that there was over $900,000 in an account in her name with Standard Chartered Bank in Singapore, they launched a discovery assessment against Mrs Tang, asking her about the money.
She provided HMRC with the information that the money belonged to her parents-in-law, and herself and her husband only managed it on their behalf, in line with their instructions.
HMRC requested £318,155 in tax and penalties covering the tax years from 1998-1999 to 2015-2016. This was subsequently reduced to £55,718 plus penalties of £42,136.
Mrs Tang appealed, on the grounds that she held the account on a bare trust for her parents-in-law, and it was not taxable in her hands. The trust was created orally, so there was no paperwork to prove its existence. HMRC countered with the argument that no trust could exist in law without a deed being produced to prove it.
The tribunal disagreed with HMRC and found that there was evidence that clearly showed a bare trust had been created with Mrs Tang as trustee.
Further details are available on the STEP website at the link below.
Although this case worked out in the taxpayer's favour, the legal action could have been avoided had a trust deed been used at the outset.
Our technical guide on Bare Trusts v Designated Accounts can also be accessed below.