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HMRC internal manual

Trusts, Settlements and Estates Manual

HM Revenue & Customs
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Ownership and income tax: implied trust: constructive trust - common intention

To establish an interest under a constructive trust, a claimant must show by evidence that at the time of the purchase there was an agreement or ‘common intention’ that the beneficial interests should not follow the legal interest. For example, prior to acquisition, A and B agree that property is to be held by them in a certain way. It is to be held in A’s name, but A and B are to have equal beneficial interests.

The agreement can be express or implied by conduct. For it to be express there must have been discussions between the parties even if these discussions were ‘imperfectly remembered’ and the terms of the arrangement imprecise. It is normal to look for evidence of an agreement before considering the conduct of the parties. Lloyds Bank v Rosset, [1991] 1 A.C 107 at 132 E-F:

‘The first and fundamental question which must always be resolved is whether, independently of any inference to be drawn from the conduct of the parties in the course of sharing the house as their home and managing their joint affairs, there has at any time prior to acquisition, or exceptionally at some later date, been any agreement, arrangement or understanding reached between them that the property is to be shared beneficially. The finding of an agreement or arrangement to share in this sense can only, I think, be based on evidence of express discussions between the parties, however imperfectly remembered and however imprecise their terms may have been.’

In practice the parties will rarely have sat down and discussed their intention and in (non-tax) Court cases the Court has looked at the parties’ conduct.