Trust Amongst Friends: Can a Bare Trust Exist Without a Trust Deed?
A Bare Trust is where an individual (the Trustee) holds assets on behalf of another person (the Beneficiary). The Beneficiary can ask for the return of the assets at any time and is treated as the absolute owner for tax purposes. Problems arise where there is no formal document setting out that, whilst the asset is in the Trustee's name, it really belongs to the Beneficiary.
A Recent Example
A recent case concerned an individual who was an NHS midwife, whose parents-in-law lived in Hong Kong. In November 2013, HMRC learned that there was a substantial sum in an account in her name with Standard Chartered Bank in Singapore. Inland Revenue launched a discovery assessment against the midwife, 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.
The tax authorities were not satisfied, but the midwife refused to provide bank statements for the account. The midwife offered to settle the matter by paying tax in instalments, the sum she offered being her estimate of the total tax payable on the account if it had been hers. HMRC rejected this, and initially issued an assessment that was twenty times higher and which included tax and penalties for deliberate failure to notify.
The midwife 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 argued that no Trust could exist in law without a Deed being produced to prove it.
What Did the Tribunal Decide?
The Tribunal felt that the midwife 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 the one 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 the midwife as a Trustee. It cancelled HMRC's assessment and the associated penalties accordingly (Tang v HMRC, 2019 UKFTT 0081 TC).
Whilst this decision is helpful in any dispute with the Revenue, it is clearly preferable for any Trust arrangement to be clearly set out. Smith Partnership specialises in Trusts, and our team is happy to assist you with any questions you may have to ensure that you avoid unnecessary conversations with HMRC.
Contact Our Specialist Wills and Trust Solicitors
To find out how we can help you manage assets through setting up a Trust, get in touch with the team today. Call us on 0330 123 1229, send us an email via email@example.com or simply complete our contact form.