The First Tier Tribunal (FTT) found that an individual who bought a property on behalf of his brother, after the bankruptcy of the latter, was holding it on resulting trust. He was not the beneficial owner of the property and was not subject to tax on its disposal.
- In Rasiah Raveendran v HMRC [2024] TC09119, Mr Raveendran owned the leasehold of a property in London.
- His brother, Mr Indraraj, traded from the property.
- In 2005, Mr Indraraj was approached by the freeholder who wished to sell the property, but due to Mr Indraraj having been made bankrupt in 2004, he was unable to obtain a loan.
- On 31 March 2005, the property was bought in the name of Mr Raveendran for £300,000.
- The bulk of the purchase monies came from a loan, also in Mr Raveendran’s name, with a further £44,000 coming from Mr Indraraj.
- Mr Raveendran sold the property to Mr Indraraj’s wife in May 2014 for £350,000.
- Mr Raveendran stated that the loan in his name had been affecting his credit score. To address this, he requested that the ownership of the property be transferred, and the loan repaid.
- At this time, the property was valued at £1,080,000.
- HMRC identified the 2014 sale of the property during an enquiry into Mr Raveendran’s 2014-15 tax return, which had not disclosed it.
- HMRC raised a Discovery assessment for £191,974. Mr Raveendran Appealed to the FTT.
The FTT found that:
- It was plausible that Mr Indraraj could not obtain borrowing due to his bankruptcy.
- Mr Raveendran was very clear that the purchase had been arranged by his brother and described the transaction as ‘my brother using my name’.
- From the outset, there was a clear understanding by both parties that the property was held for Mr Indraraj. They were clear that Beneficial ownership was solely with Mr Indraraj.
- All of the purchase price was funded by Mr Indraraj via direct contribution or by servicing the mortgage which was in Mr Raveendran’s name.
- Mr Indraraj had also contributed significant amounts to pay for further improvements in the property.
- The only funds contributed by Mr Raveendran were the loan, which was repaid when the property was sold in May 2014.
- Although NatWest statements were not available to verify the source of the £44,000 deposit, this was merely an absence of evidence, which was not evidence of absence.
- No evidence pointed to the original transaction being anything other than a Resulting trust. As such, Mr Indraraj was the sole beneficial owner of the property.
The appeal was allowed.
Comment
HMRC viewed the mortgage in Mr Raveendran's name as a contribution made by him. As a result, HMRC argued that if the FTT found a trust in existence, then their original assessment should be amended in proportion to the contributions of each party to the purchase price of the property.
The FTT found that the entire purchase price was funded by Mr Indraraj: he had serviced the mortgage, meaning that it was not a contribution by Mr Raveendran.
As Mr Indraraj was the sole beneficial owner, the full amount assessed on Mr Raveendran was overturned.
Useful guides on this topic
How to appeal an HMRC decision
Disagree with an HMRC decision? How do you appeal, what type of decision can you appeal and what are your different options when you disagree with HMRC? What are the key steps in making an appeal?
Discovery Assessments
When can HMRC issue an assessment outside of the normal statutory time limits? What conditions must be met? Can HMRC issue two alternative assessments for the same period? What are your rights of appeal and defences?
Joint property, beneficial ownership & legal title: At a glance
What is the difference between legal and beneficial ownership? How are the different forms of ownership taxed?
Acting for a trust? Start here…
This is an essential guide for advisers and trustees on how to manage the tax affairs of a UK trust and how to avoid common pitfalls.
UK Trusts
What is a trust? What types of trust are there? How are UK trusts taxed?
External link
Rasiah Raveendran v HMRC [2024] TC09119
