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A bare trust does not need a trust deed

The Tribunal has overturned a decision by HMRC and ruled in Tang v HMRC that a bare trust can exist when there is an oral agreement and no trust deed.

The case concerned Mrs Tang whose parents-in-law lived in Hong Kong. HMRC discovered Mrs Tang had a significant sum of money in a Singapore bank account. HMRC requested further information, believing that Mrs Tang was liable to pay tax on the amount.

Mrs Tang said the money belonged to her parents-in-law and that she managed it as her parents-in-law instructed. Therefore, she held the money on bare trust for her parents-in-law and it was not taxable as her parents-in-law had no tax obligations to HMRC.

HMRC reasoned that for a bare trust to exist, there must be a trust deed and in this case there was not.

The Tribunal said the evidence supported the existence of a bare trust. Specifically:

  • Mrs Tang’s and her husband’s salaries would not have been enough to result in the sum in the bank account;

  • Statements from the parents-in-law to say the account was held on trust; and

  • Evidence that Mrs Tang only used the account in accordance with her parents-in-law’s instructions.

Therefore, Mrs Tang was the trustee and her parents-in-law were the beneficiaries of the bare trust.

Top Tip: Despite this case, if you are considering setting up a trust, it is a good idea to make sure you have the necessary paperwork in place. In particular, the decision in this case is unlikely to apply to property interests where a written deed will be required.

For advice on Private Client matters, please contact Nicole Gallop Mildon, Head of Private Client.