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Bare trust can exist without a trust deed, says UK tribunal

Tuesday, 23 April, 2019

A taxpayer can be regarded 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. In November 2013, HMRC learned that there was more than USD900,000 in an account in her name with Standard Chartered Bank in Singapore. HMRC had discovered this by issuing an information notice to the bank.

HMRC launched a discovery assessment against Mrs Tang, asking her about the money. She replied that it belonged to her parents-in-law, and that she and her husband only managed it on their behalf and in accordance with their instructions. HMRC was not satisfied and issued a schedule 36 information notice. Mrs Tang refused to provide bank statements for the account, because her parents-in-law did not want their personal information passed to HMRC, to whom they had no tax obligations.

She offered to settle the matter by paying GBP18,682 in instalments, this being her estimate of the total tax payable on the account if it had been hers. HMRC rejected this, and issued a formal assessment for GBP318,155 in tax and penalties for deliberate failure to notify, covering the tax years from 1998-1999 to 2015-2016. This was subsequently reduced to GBP55,718 plus penalties of GBP42,136.

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, noting that Mrs Tang had produced significant evidence of the trust's existence. Her salary and that of her husband could not have produced such a large sum as that in the bank account. Her parents-in-law had provided a statement that the funds were held in a bare trust, and she had produced bank statements showing that she had administered the account and moved the funds around in accordance with their instructions.

The Tribunal found that this evidence clearly showed a bare trust had been created with Mrs Tang as trustee. Moreover, her assertion that she was unable to provide bank statements for reasons of privacy and confidentiality was consistent with her contention that she was a bare trustee. It accordingly cancelled HMRC's assessment and the associated penalties (Tang v HMRC, 2019 UKFTT 0081 TC).

Sources