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HMRC internal manual

Trusts, Settlements and Estates Manual

HM Revenue & Customs
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Ownership and income tax: Specific types of property: land and buildings: example 7: sole name - taxpayer claims constructive trust

A purchased a house as an investment. The house was registered in his name alone and he provided the purchase money by way of a mortgage. His wife B does not work and has no other income. A is a higher rate taxpayer.

The rental income is returned by A and B each on a 50/50 basis.

As is usual in these income tax cases, there is no conflict between the taxpayers, but HMRC may disagree with them.

Taxpayer’s position

A says that S53(2) Law of Property Act applies (TSEM9914). The requirement for a trust in respect of land and buildings to be in writing is removed where there is a resulting, implied or constructive trust. He says that there is a constructive trust (TSEM9700) in which B has a beneficial interest in the property. A says he and his wife agreed at the outset that the property was to be owned jointly, and there is therefore a ‘common intention’ (TSEM9720).

A says that B has demonstrated ‘detriment’ in that she was relying on the arrangement in that she expected to share in the proceeds of any sale (TSEM9730).

HMRC’s position

ITA/S836 (TSEM9814) does not apply because the property is not in joint names, so the general principles apply.

The house is in the sole name of A. He is the sole legal owner, and presumably the sole beneficial owner, unless there is evidence to the contrary (TSEM9140).

In the case of land and buildings, S53 Law of Property Act 1925 applies. For B to have a beneficial interest there must be a resulting or constructive trust in her favour.

B cannot claim an interest by way of a resulting trust (TSEM9600) because she has not contributed to the purchase price (TSEM9640).

HMRC does not agree that a constructive trust arises, because no evidence exists of any agreement made at the time of purchase to share the beneficial ownership in the property. Nor has a common intention to share ownership been inferred from the conduct of the parties over the whole course of dealing with the property (TSEM9720).

There is no detriment because B has not given anything away or significantly changed her position (TSEM9730).

A is entitled to all the income, and is taxable on it.