In Lily Tang v HMRC, the FTT has held that there was a bare trust despite the absence of a trust document and that the bare trustee did not have to notify HMRC nor was she liable for tax in relation to the funds she held on trust.
Mrs Tang was a midwife working in the NHS. She worked night shifts so that she could care for her three children during the day. By 2015/16, Mrs Tang was earning about £40,000 per year. Her husband, Mr Tang, worked for the UK branch of the Singapore bank Oversea-Chinese Banking Corporation Limited, earning between £35,000-40,000 per year. They lived together in a house purchased in 1998 for £73,000 with the aid of a mortgage.
On 15 November 2013, HMRC opened an enquiry into Mrs Tang’s tax position following information it had received that Mrs Tang had over $900,000 in an account in her name with Standard Chartered Bank in Singapore (the fund).
Mrs Tang maintained that the fund belonged to her husband’s parents and she had no personal liability to tax in respect of it as she held it on trust for her parents-in-law. Mrs Tang also argued that she had no obligation to complete a tax return as she was a basic rate taxpayer and all tax due from her was deducted through PAYE in relation to her salary and by her bank from whom she received a small amount of interest.
HMRC considered that, in the absence of a formal trust document, the fund belonged to Mrs Tang, and raised discovery assessments in respect of tax years 1998/99 to 2015/16, inclusive, pursuant to section 29, Taxes Management Act 1970.
In 2017, the fund was returned to Mrs Tang’s parents-in-law on their instructions.
Ms Tang obtained the following sworn statement from her parents-in-law:
“We [names] confirm that the monies we currently hold with Standard Chartered Bank in Hong Kong of approximately $900k that were held in the name of our daughter-in-law Mrs Ping Tang between approximately 2008 and 2017 have always, and continue to be, beneficially owned by us …
We confirm that when we placed these monies into Mrs Tang’s name, it was not a gift; the funds were simply transferred into her name in order to allow the family to continue to access them. We reiterate that these funds have always been, and continue to be, beneficially owned by us.”
Following receipt of this statement, HMRC withdrew the assessments for the years prior to 2008, but maintained that the fund belonged to Mrs Tang after this time and therefore she was liable to tax.
Mrs Tang appealed to the FTT.
The appeal was allowed.
It was common ground that Mrs Tang was the legal owner of the fund, she had control over the monies and she was entitled to give instructions to transfer the monies to other accounts. The issue was whether a trust existed.
Although HMRC relied heavily on the absence of a written trust document, the FTT noted that: “it is well settled under English law that a trust does not need to be in writing and may be made orally”. Further, the FTT noted that a bare trustee’s duty is to do as instructed by the beneficial owner.
Whilst from HMRC’s perspective, Mrs Tang had been uncooperative to the extent that it issued information notices under Schedule 36, Finance Act 2008, the FTT said that Mrs Tang’s claim to be unable to provide documents and information was consistent with Mrs Tang’s contention that the fund belonged to her parents-in-law and she was unable to provide statements for reasons of privacy and confidentiality. The FTT noted that Mrs Tang’s circumstances were modest and her living situation was not consistent with someone having $900,000 at their disposal.
Finally, the FTT acknowledged the strength of the sworn statement of Mrs Tang’s parents-in-law which it considered set out a coherent and credible account of where the fund came from and why it was dealt with as it was.
Based on all the evidence before it, the FTT concluded that Mrs Tang held the fund as bare trustee for her parents-in-law and that she transferred the fund back to them as beneficial owners in 2017. Accordingly, Mrs Tang was not personally liable to tax in relation to the fund and had no liability to notify HMRC.
Whilst the FTT’s conclusion that a trust does not require a written document to be formed is not surprising and is a re-statement of settled law, the decision demonstrates that it is not always necessary to produce formal documentation before the FTT in order to establish the facts. It is not obvious why HMRC felt unable to accept the strength of the sworn statement which Mrs Tang’s parents-in-law had produced. If it had, Mrs Tang would not have been put to the inconvenience of having to pursue an appeal to the FTT.