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HMRC internal manual

Capital Gains Manual

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Private residence relief: settled property: implied trusts

TCGA92/S225

An implied trust is created by the operation of law and not the express intention of the settlor. But it is still a trust and the property that is subject to the trust may be settled property. In that case relief under TCGA92/S225 may be due to the legal owner of the property as they hold the property as trustee.

Implied trusts divide into two categories, resulting trusts and constructive trusts.

Resulting trusts

A resulting trust recognises that someone other than the legal owner has made a material contribution to the acquisition of a property. There is a presumption, which can be rebutted by evidence, that the legal owner holds the property on trust for the person who financed the purchase. So if Mr A provides money to Mr B to buy a property that is registered in Mr B’s name there is a presumption that Mr B holds the property on resulting trust for Mr A. Such a trust would be a bare trust and not settled property. See CG34300+. The presumption can be rebutted by evidence that Mr A intended to make a gift to Mr B.

Following the House of Lords decision in Stack v Dowden [2007] UKHL 17 the presumption of resulting trust has little application to domestic property. In paragraph 31 of Lord Walker’s opinion he says:

In a case about beneficial ownership of a matrimonial or quasi-matrimonial home (whether registered in the names of one or two legal owners) the resulting trust should not in my opinion operate as a legal presumption, although it may (in an updated form which takes account of all significant contributions, direct or indirect, in cash or in kind) happen to be reflected in the parties’ common intention.

Constructive trusts

A constructive trust protects the interests of a person if they have agreed with the legal owner that the land should be held in some particular way and the person has acted on the agreement. The constructive trust prevents the legal owner going back on his or her word.

Recent case law - common intention constructive trusts

The law on implied trusts as it applies to domestic property has recently been the subject of extensive review in two leading cases, Oxley v Hiscock [2004] EWCA Civ 524 and Stack v Dowden [2007] UKHL 17. Both these cases concerned the rights of unmarried cohabitants to a share in domestic property. Neither was concerned with tax and they make no comment about the capital gains tax treatment of a dwelling house. They are important to claims under TCGA92/S225 because they set out the factors you will need to consider if a person claims that property is occupied under the terms of a constructive trust. Oxley v Hiscock and Stack v Dowden deal with claims to a share in the beneficial ownership of the property. The same principles apply in deciding if a person occupies the property under the terms of a constructive trust.

A claim under TCGA92/S225 that property is held on constructive trust is most likely to depend on the taxpayer establishing that there is a common intention constructive trust by reference to the principles in Oxley v Hiscock and Stack v Dowden. See CG65420 to CG65428 for guidance on whether there is a common intention constructive trust. See CG65429 for guidance on other cases in which there may be a constructive trust to which TCGA92/S225 applies.

This guidance applies to property in England and Wales. If you receive a claim in respect of property in Scotland or Northern Ireland ask the claimant for an explanation of their reasons why the property is settled property and refer the case to CAR-CGT Technical Group.