Tribunal confirms no tax due on disposal of property held on trust for taxpayer's brother

In Raveendran v HMRC [2024] UKFTT 273 (TC), the First-tier Tribunal (FTT) allowed the taxpayer's appeal against HMRC's discovery assessment in relation to the disposal of a property.

Background

Rasiah Raveendran (the Appellant), had held the leasehold interest in a property since 1989, with his brother operating a business from the property. When the freehold title to the property became available in 2005, the Appellant acquired it because his brother, Mr Indraraj, who was recently bankrupt, could not secure a loan to purchase the property. After nine years of full ownership the Appellant transferred the property to Mr Indraraj's wife for £350,000. A valuation obtained by HMRC valued the property at £1,080,000. 

HMRC opened an enquiry into the Appellant's 2014/15 tax return and became aware that the transfer of the property had not been disclosed by the Appellant.

HMRC raised a discovery assessment for the 2014/15 tax year, under section 29, Taxes Management Act 1970, for £191,973.50. The Appellant's position was that he was only the legal owner, not the beneficial owner, of the property which he held on trust for his brother. The Appellant appealed the assessment to the FTT.

FTT decision

The appeal was allowed. 

The issue to be determined by the FTT was whether the Appellant was the beneficial owner of the property?

The Appellant and Mr Indraraj gave evidence under oath and Mr Puspandan, who was advising the Appellant at the time of the transaction, provided evidence in writing to HMRC.

Having considered all of the available evidence, the FTT concluded that:

• all of the purchase price for the property was funded by Mr Indraraj, either from direct contribution or from servicing the mortgage that was taken out in the name of the Appellant. 
• Mr Indraraj was unable to obtain credit due to his bankruptcy. 
• from the outset there was a clear understanding between the Appellant and Mr Indraraj that the property was held for Mr Indraraj. 
• Mr Indraraj had contributed not insignificant amounts (some 10% of the purchase price) to pay for further improvements to the property.

The FTT noted that Mr Indraraj had gone to considerable lengths to find evidence of his contribution, and to obtain evidence to show his continuing contribution to the improvements to the property.

The FTT said that the absence of evidence was not evidence of absence and that there was no evidence that pointed to the original transaction being anything other than a resulting trust. The FTT therefore decided that Mr Indraraj was the sole beneficial owner of the property which was held on trust for him by the Appellant.

Comment 

This decision demonstrates that even where contemporaneous documentary evidence is limited, credible witness evidence can establish a taxpayer's case. Of course, it is preferable for taxpayers to properly document any arrangement under which  they are the legal owner of property but not the beneficial owner of that property. Had a trust deed been executed showing that Mr Indraraj was the beneficial owner of the property, it is likely HMRC would not have issued the assessment and there would have been no dispute for the FTT to determine. 

The decision also provides a helpful summary of the relevant law on resulting and constructive trusts.

The decision can be viewed here.