Case Summary
Appellant :
Lily P Tang
The Commissioners for her majesty's revenue & customs
First-tier Tribunal Tax Chamber

Mrs Tang is a midwife in the NHS. In the tax year 2007-8 she earned just under £22,000. By 2015-16 she was earning about £40,000 a year. In April 2008, the sum of £422,000 was deposited in the London branch of OCBC in an account in Mrs Tang's sole name. After that, Mrs Tang made currency trades and transferred the funds back and forth to bank accounts in Hong Kong and Singapore opened in her name or jointly with other family members. In 2017, the funds were returned to her parents-in-law in Hong Kong.

On 15 November 2013, HMRC started to open an enquiry into Mrs Tang's tax position by a letter on the basis of information received that Mrs Tang had over $900,000 in a bank account in her name (in the joint names of Mr Tang ) in Singapore. However, Mrs Tang asserts that the funds were held by her as bare trustee for family members resident in Hong Kong so that she has no personal liability for the income and gains which arose on them. HMRC take the view that the funds were held in her name and no evidence of any trust was produced.

Finally, HMRC raised discovery assessments in respect of the years 2008-9 to 2015-16 and penalties Mrs Tang for her deliberate failure to notify her liability to tax. The income tax and Capital Gains Tax assessments total £55,718.40 and the penalties total £42,135.92 which, together, amount to £97,854.32.

On 6 September 2017, the parents-in law of Mrs Tang offer a statement confirms that the capital of the fund derived from the parents-in-law's restaurant business and held in the name of Mrs Tang, which have always been, and continue to be, beneficially owned by themselves. Later, HMRC was prepared to accept a settlement for a sum considerably less than the tax and penalties. However, Mrs Tang did not accept the offer of a settlement and appealed to the FTT.

Key Issue
Whether the Appellant was holding the funds in question for her own benefit or upon a bare trust for non-UK resident family members?
Appellant argued that
The funds never belonged to her beneficially. She held them on bare trust for her parents-in-law who were the true beneficial owners.
The trust was created orally, so there was no "paperwork" to prove its existence.
She had always acted on the instructions of her parents-in-law in relation to the funds including transferring the accounts and making the currency trades. She had never had any benefit from the capital or income of the money because it was not hers.
As the income and gains did not belong to her, she had no liability to tax in respect of them. She had not failed to notify HMRC of a tax liability and so the penalties for failure to notify were also invalid.
Respondence response that
Mrs Tang held the legal title to the funds and had the power to control the money.
She had received the income and capital gains on the funds and her father-in-law had no legal claim to them.
There was no evidence that a trust had been set up.
Appellant appeared to be uncooperative and that they had to resort to information notices to obtain the bank statements.
Since the income and gains belonged to the Appellant, the Appellant was required to notify her liability to tax and she had deliberately failed to do so. She had no reasonable excuse for her failure. Accordingly the penalties for failure to notify a tax liability had been properly charged.
It is well settled under English law that a trust does not need to be in writing and may be made orally.
The duty of a bare trustee is to do what he is instructed to do by the beneficial owner. He has no duty to manage the investments himself, nor is he liable for failing to do so. He must invest in what the beneficial owner tells him to invest and transfer the assets where the beneficial owner tells him to transfer them. The assets belong to the beneficial owner, and the beneficial owner, not the trustee, is the person who may be liable to tax on the income and gains arising.
In the current case, the tribunal considers that it is unlikely that of Mr and Mrs Tang's had the knowledge to carry out successful currency trading by themselves when they take a look at their jobs (NHS midwife and employer in retail banking). Mrs Tang had also not sought professional advice on the management of the funds. Rather, it seems that she simply followed the instructions of the beneficial owners of the funds. ( for instance, when it looked as if Mrs Tang's husband was going to be posted to Singapore, the parents-in-law required the account to be moved and to be in the joint names of Mrs Tang and their son in Singapore).
All the interest of the currency trading was added to the accounts. There is no evidence that Mrs Tang made withdrawals from any of the account. What's more, the bank record noted that the account was in Mrs Tang's name but noted "in trust for Jeffrey Tang (her parents-in-law)". It is not uncommon for bare trust accounts to be denoted in such way.
Mrs Tang refused the settlement around half of the liability ultimately assessed partly since the amount was too big. It is inconsistent with Mrs Tang having $900,000 at her disposal.
Mrs Tang appeared to be uncooperative and that HMRC had to resort to information notices to obtain the bank statements. However, the Appellant's assertion that she was unable to provide the statements because the money belonged to her parents-in-law and for reasons of privacy and confidentiality they did not want her to produce them is consistent with her contention that she was a bare trustee.
The statement made by the parents-in-law was obtained by BDO, a large and reputable firm of accountants and there is nothing to suggest that it is not genuine. It very clearly emphasizes that although Mrs Tang was the legal owner of the funds, the parents-in-law were the beneficial owners and Mrs Tang was not allowed to benefit from the money and did not do so at any time during the period in question.
Mrs Tang held the funds in the bank accounts as trustee only on bare trust for her parents-in-law throughout the period in question.

The discovery assessments and the penalties was cancelled and the appeal allowed.

Author of the article Melody Feiyi Guo