Tax on UK house sale quashed because seller's brother was the real owner

The appellant had bought the property in 2005 for GBP300,000 and sold it to his brother's wife in 2014 for GBP350,000. HMRC discovered the sale during an enquiry into the appellant’s 2014/15 tax return and decided the property was sold at a considerable undervalue, the real value being GBP1.08 million. It issued the appellant with a discovery assessment of nearly GBP192,000.

He challenged the assessment, claiming that he had originally bought the property on behalf of his brother, a Mr Indraraj, who had provided the money for the purchase. Indraraj had been unable to buy the property in his own name because he had been made bankrupt the previous year and could not obtain the necessary loan.

The appellant provided a bundle of evidence to prove that his brother was the beneficial and legal owner by means of a resulting trust. The evidence included completion statements for the purchase showing cash transfers of GBP44,000 to the solicitors. The appellant said these transfers came from Indraraj, although the corresponding bank transfer records could not be traced as the purchase had occurred more than seven years previously. However, the appellant was able to supply evidence that Indraraj had paid significant sums for repair and renovations of the property while it was in the appellant’s nominal ownership.

On the other hand, he admitted he had never told either the bank or the law firm acting for the purchase that he was not the beneficial owner of the property. Moreover, he also paid the mortgage instalments, although both he and Indraraj claimed the money came from Indraraj.

HMRC argued that the claim should be dismissed, as there was no trust deed showing Indraraj's beneficial ownership and insufficient evidence of either a resulting trust or common intention constructive trust. As the appellant was the legal owner of the property, he should be assumed to be the beneficial owner of the property in the absence of evidence to the contrary, it said. According to HMRC, without any trust deed, the evidence supplied was not enough to demonstrate there was either a resulting trust due to Indraraj making a significant financial contribution to the property or a common intention constructive trust in which the beneficial owner acted to his detriment.

However, the FTT disagreed. It ruled that the consistent evidence of the two brothers, backed up by all the circumstantial evidence, pointed to all the purchase price of the property having been funded by Indraraj, either from direct contribution or from servicing the mortgage. The fact that the bank did not hold records of the payment of the deposit should not be seen to be anything other than an absence of evidence, and 'absence of evidence is not evidence of absence', said the FTT.

'There is no evidence, in our opinion, that points to the original transaction being anything other than a resulting trust', said the FTT, allowing the appeal against the assessment on the basis of resulting trust (Raveendran v HMRC, 2024 UKFTT 273 TC).

Sources

• BAILII