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image of two young brothers | accountingweb | Constructive trust - which brother was the beneficial owner of a property?
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Kind brother wins £192k appeal on matter of trust

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In a case concerning who was the beneficial owner, a taxpayer who bought a property to help his bankrupt brother won his appeal against a discovery assessment.

7th Jun 2024
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A taxpayer who bought a property to help his bankrupt brother has won his appeal against a discovery assessment, with the first tier tribunal finding that the property was entirely beneficially owned by his brother.

From 1989, Rasiah Raveendran owned the leasehold of a London property, from which his brother Indraraj traded.

In 2005, Indraraj was approached to buy the freehold. However, as Indraraj had been made bankrupt in 2004, he could not obtain a loan to purchase the property. As a result, Raveendran purchased the property in his own name for £300,000 in March 2005. 

Raveendran subsequently sold the property to his sister-in-law – Indraraj’s wife – for £350,000 in May 2014. At that time, the property was valued at £1,080,000.

Discovery assessment

During the course of an enquiry into Raveendran’s 2014/15 tax return (which made no mention of the transaction), HMRC discovered the sale of the property.

HMRC issued Raveendran an in-time discovery assessment for 2014/15 for the sum of £191,973.50. The taxpayer appealed [TC09119].

Use of name

The taxpayer argued that he was not the beneficial owner of the property, and that it was understood by him and his brother that Raveendran was holding the property on trust for Indraraj. 

As Indraraj put things, Raveendran “did not make any financial benefit as the result of this purchase… all he did was allow me to use his name and nothing else.”

Raveendran said he had agreed to help his brother on the proviso that his brother would take over the loan within five years. This did not happen as the brother remained unable to take out a loan.

Ultimately, it appeared that intervention from the Raveendran’s wife resulted in the property’s sale. The loan on the property had affected Raveendran’s credit score, which resulted in difficulties with his spouse. As a result, Raveendran requested that ownership of the property be transferred and the loan repaid.

Mortgage payments

A completion statement for the purchase of the property showed that two transfers of £22,000 and a loan in Raveendran’s name formed the bulk of the monies for the purchase. While the taxpayer and his brother maintained that the transfers of £22,000 came from Indraraj, the brother was unable to provide corroborating evidence, as his bank no longer held those records as they were over seven years old.

The taxpayer also confirmed that Indraraj paid the mortgage, with amounts coming from the brother to Raveendran and on to the bank. A bill for £35,000 of renovations, paid for by Indraraj, was also provided as evidence.

However, HMRC argued that there was insufficient third-party evidence to show that Raveendran was not the beneficial owner of the property. There was no trust deed to show that beneficial ownership was held by Indraraj, and that there was insufficient evidence to show either a resulting or constructive trust.

Absence of evidence

The FTT had little difficulty finding that the discovery assessment had been validly made. Instead, the central focus of the appeal was whether Raveendran was the beneficial owner of the property.

After considering the taxpayer’s evidence, the evidence provided by his adviser, and the circumstantial evidence, the FTT found that all the purchase price of the property was funded by Indraraj, either from direct contribution or from servicing the mortgage held in Raveendran’s name.

There was a clear understanding by both parties that the property was held for Indraraj, and that Indraraj contributed not insignificant amounts (about 10% of the purchase price) to pay for further improvements to the property.

As to the lack of records from the bank to prove the payment of the deposit, the FTT noted that this should be seen as nothing other than an absence of evidence, and that an absence of evidence was not evidence of absence.

There was no evidence, in the FTT’s opinion, that pointed to the original transaction being anything other than a resulting trust.

As it was the taxpayer’s brother who was the beneficial owner of the property (and not the taxpayer – whom HMRC had assessed) the appeal was allowed.

Beneficial owner

HMRC also argued that should the FTT find that there was a trust, the discovery assessment should be amended in proportion to the contributions of each party to the purchase price of the property (with HMRC considering the mortgage to be a contribution by Raveendran).

This argument also failed. The FTT found that the entire purchase price had been funded by the taxpayer’s brother, with the result that Indraraj was the sole beneficial owner of the property.

Replies (4)

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By Justin Bryant
07th Jun 2024 14:17

And to think of all the naysayers on this website who were adamant that you could not apply for a mortgage as a nominee!

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Replying to Justin Bryant:
Danny Kent
By Viciuno
07th Jun 2024 15:19

Did Raveendran inform his mortgage company that the property was being held in trust? If so, wonder why this wasn't used as evidence to the existence of the trust*

If he didn't, and the mortgage company found out, would they have immediately demanded repayment of the loan?

The mortgage companies have (mostly) made it clear that they would not agree to be party to this arrangement. Don't see how this case says otherwise.

*I've not read the judgement, so apologies if it is covered there

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Replying to Viciuno:
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By Justin Bryant
07th Jun 2024 15:26

No and possibly are the answers there.

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By TessaTorphins
11th Jun 2024 08:18

Please can you use first names rather than surnames in reports. This one was incredibly difficult to follow with both parties and spouses having the same surname!

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