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HMRC internal manual

Trusts, Settlements and Estates Manual

Ownership and income tax: Specific types of property: bank and building society accounts: examples 5: sole name - taxpayer claims oral trust

As a result of the Overseas Disclosure Facility, A provides details of an offshore bank account held in his sole name. The funds were provided by him alone.

A claims that the interest is taxable on himself and his wife B 50/50. A is a higher rate taxpayer, B has no income and is a non-taxpayer.

There is no disagreement between the taxpayers, but HMRC may disagree with them.

Taxpayer’s position

There is nothing in writing, but A says that the money in the account ‘was always regarded as belonging to himself and his wife’. A says this ‘was based on an agreement they had when the account was opened’. The money in the account ‘was to be used for their retirement in about 10 year’s time’.

A claims an oral trust on the basis of the ‘agreement’. A and B offer to sign a statutory declaration to this effect.

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HMRC’s position

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

The account 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).

B cannot claim an interest by way of a resulting trust (TSEM9600) because she has not contributed to the funds in the account.

The property is personal property so there is no requirement for anything in writing, but you need to consider the ‘oral trust’ claim carefully.

The statement that the money in the account was always regarded as belonging to A and B is too vague. It does not indicate whether the account was to be held as joint tenants (TSEM9210) or as tenants in common (TSEM9220), so in itself it is not evidence that supports their claim.

Nor does it cover what would happen in the case of the death of A first, or B first, or in the case of divorce. If A dies while the account is still in his sole name, how could B prove any entitlement to it? If they have not agreed what should happen to the funds on their deaths etc., this throws doubts on the validity of any trust claimed because of uncertainty (TSEM9520).

If there was an intention that the wife was to have an interest in the account, it could have been opened in joint names. There was no explanation for the account not being in joint names, such as the other party being a minor.

Even if A and B now sign a statutory declaration to the effect that they intended the bank account to be held for them both, that in itself does not constitute evidence. You would need to see evidence to support the declaration.

In the absence of evidence of a valid oral trust, A is taxable all the interest.