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You are here: BAILII >> Databases >> First-tier Tribunal (Tax) >> Akhtar v Revenue and Customs [2025] UKFTT 395 (TC) (02 April 2025) URL: https://www.bailii.org/uk/cases/UKFTT/TC/2025/TC09469.html Cite as: [2025] UKFTT 395 (TC) |
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Appeal reference: TC/2021/03093 |
TAX CHAMBER
And 9-12 September 2024 with Written Submissions in November and December 2024 and February 2025 Judgment Date: 2 April 2025 |
B e f o r e :
MR MICHAEL BELL
____________________
| PERVEZ AKHTAR |
Appellant |
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| - and - |
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| THE COMMISSIONERS FOR HIS MAJESTY'S REVENUE AND CUSTOMS |
Respondents |
____________________
For the Appellant: Ms Charlotte Brown of counsel instructed by AKA Chartered Accountants
For the Respondents: Mr Daniel Hickey-Baird litigator of HM Revenue and Customs' Solicitor's Office
____________________
Crown Copyright ©
INCOME TAX AND CAPITAL GAINS TAX – discovery assessments – valid discovery – yes – unexplained bank deposits – source - untaxed withdrawals from the appellant's business – yes but not to the extent assessed - deliberate behaviour – yes – contributions to the acquisition of properties legally owned by the appellant – untaxed withdrawals – no – provided by friends and relatives – yes – properties held on constructive trusts – yes – consequential impact on assessments for chargeable gains and rental income – appeal allowed in part
INTRODUCTION
(1) Whether the assessments are valid, in time, assessments ("the discovery assessment issue").
(2) Whether the appellant has provided us with a satisfactory explanation for the source of funds for the bank deposits which HMRC have taxed as suppressed income from the companies ("the unexplained bank deposits issue").
(3) What was the source of the funds (other than the mortgage money) for the purchase of the properties in question ("the property deposits issue"). This is really a subset of the unexplained bank deposits issue, but we have dealt with it as a separate, albeit related, issue since it links the unexplained bank deposits issue with the ownership and tax issues mentioned immediately below.
(4) Who were the beneficial owners of the relevant properties ("the ownership issue"). This will determine who is responsible for CGT on the sale of those properties ("the gains issue") and who is responsible for income tax on the rental income derived from those properties ("the rental income issue").
THE LAW
THE EVIDENCE AND THE FACTS
Background
(1) The appellant was a director and shareholder of the company which was incorporated and started trading as a taxi company in 2006. It was based in London and was dissolved in 2015. In or around 2011, the company was taken over by Pronto Cars (London) Limited and the appellant was a co-director and 50% shareholder of that company. It was Mr Khan's evidence that Pronto Cars (London) Limited traded from the same premises as the company until 2019.
(2) Pronto Cars (London) Limited submitted tax returns to HMRC for the years 2013 to 2019 inclusive, reporting profits (and in two years losses) for those years.
(3) On 10 January 2011 HMRC opened an enquiry into Mr. Akhtar's tax return for the tax year ended 5 April 2009.
(4) On 22 August 2012 the appellant became subject to HMRC's COP 9 procedures.
(5) On 15 November 2012 a meeting was held between the appellant, HMRC and Mr. Khan.
(6) On 3 October 2013 discovery assessments were raised against Mr. Akhtar for 2007/2008-2011/2012.
(7) Mr. Akhtar appealed against these on 10 October 2013.
(8) On 11 October 2013 HMRC issued assessments for 2006/2007-2011/2012 against the company.
(9) On 17 January 2014, HMRC confirmed the personal tax return assessments were based on rental income and car benefits, and the company assessments were based on unexplained bank deposits.
(10) On 1 October 2014 Mr. Khan wrote to HMRC and provided information about various properties including bank deposit schedules and trust documents.
(11) On 26 January 2015 the appellant lodged an appeal with the FTT in relation to the 2013 personal assessments.
(12) On 9 November 2015 Officer Marriott issued a closure notice in relation to the 2008/2009 enquiry that had been opened in 2011.
(13) On 29 January 2016 HMRC applied to FTT for an extension of time to serve its statement of case in that appeal in order to seek specialist advice in relation to declarations of trust relating to various properties.
(14) On 31 March 2016 HMRC wrote to Mr. Khan and explained the advice received.
(15) On 19 June 2017 HMRC issued amended assessments to the 2013 assessments.
(16) In September 2017 HMRC secured approval for the issue of third-party information notices in relation to mortgage applications made by the appellant and Mrs Akhtar.
(17) Copies of the mortgage responses were obtained from those mortgage providers and on 18 December 2017 HMRC were sent to the appellant. Correspondence between the parties continued until 19 December 2018 when HMRC provided the appellant with their opinion on the value of the properties.
(18) The assessments were issued in two decision letters. By a letter dated 27 August 2020 HMRC issued assessments for tax years 2007/2008-2016/2017. On 7 October 2020 the appellant appealed against those assessments. On 9 December 2020, HMRC issued their view of the matter letter in relation to them.
(19) By a letter dated 17 December 2020, further assessments were raised for the tax years 2006/2007 and 2017/2018.
(20) On that date the appellant appealed against those assessments and requested an independent review. HMRC provided their view of the matter letter on 18 January 2021, and then a review conclusion letter, dated 23 July 2021, which upheld all of the decisions.
(21) The appellant appealed the assessments to the tribunal on 19 August 2021.
The properties: Acquisitions and disposals
(22) Slough Road. This property was purchased on 7 August 2006 by Mrs Akhtar. She is the sole registered proprietor. The purchase price was £540,000. The purchase was funded by a mortgage from the Halifax of £459,000. The balance of the purchase price plus additional costs of £104,280 was funded, according to Mr Akhtar, by Mr Masood Abbasi, who is the husband of Mrs Akhtar's sister ("Mr Abbasi").
(23) Harvey Lodge. This property was purchased on 11 December 2008 by Mr Akhtar who is registered as the sole legal owner. The purchase price was £240,000. The purchase price was funded by a mortgage of £238,732 from Santander. It was Mr Akhtar's evidence that the deposit of £24,000 was funded by Mr Abbasi.
(24) This property was sold on 6 January 2014 for £385,250. HMRC have assessed the appellant to an adjusted chargeable gain of £103,204.
(25) Vincent Road. This property was purchased on 4 June 2010 for a purchase price of £249,000 by Mr Akhtar who is the registered legal owner. It was funded by a mortgage from the Halifax of £202,805. It was Mr Akhtar's evidence that the balance of the price and additional costs totalling £50,177 came from a friend, Mr Dilawar Khan ("Mr Dilawar Khan") who lived in Pakistan and wanted to invest in a property in the United Kingdom.
(26) Hill Street. This property was purchased on 29 June 2014 by Mr Akhtar who is the sole registered legal owner. The purchase price was £210,000 which was funded by a mortgage of £141,964 from the Lancashire Mortgage Corporation.
(27) This property was sold for £245,000 in the tax year 2015/2016. HMRC have assessed the appellant to a net adjusted chargeable gain of £14,236 for that tax year.
(28) Barnard Lodge. This property was purchased on 7 May 2008 purchase price of £429,000. The appellant is registered as a sole legal owner. The purchase price and additional costs were funded by way of a mortgage from the Cheltenham and Gloucester of £364,000. It is the appellant's evidence that Mr Abbasi funded the balance of £80,567.
(29) The market value of this property on its disposal in 2013/2014 was £585,000. HMRC considered that the net chargeable gain on this disposal amounted to £139,465. HMRC, however, have not assessed the appellant on this gain as they accept that "beneficial ownership rests elsewhere".
(30) Rossmore Court. The completion statement for the purchase of this property records that it was purchased by the appellant on 28 November 2007 for £290,000. This was funded by way of a mortgage from GMAC of £260,925. It was Mr Akhtar's evidence that the balance of £39,615 was provided by Mr Abbasi.
(31) It was Mr Akhtar's evidence that this property was transferred to Mr Abbasi on 27 November 2009 and that Mr Abbasi discharged the outstanding mortgage.
(32) HMRC have valued this property at the date of that transfer at £285,000 and have calculated that there is a net chargeable loss arising to the appellant on the transfer of £17,125. HMRC accept that "beneficial ownership rests elsewhere" in relation to this property.
The mortgage applications
(33) Slough Road. The mortgage application to the Halifax was made by Mrs Akhtar on 8 June 2006 and was for a loan of £459,000. The monthly repayments were to be £1,428. It was an interest only mortgage. That application records Mrs Akhtar as being a commodity dealer with Meegalla enterprises with a basic annual income before tax of £102,000 and a guaranteed bonus of £10,200.
(34) It was Mr Akhtar's evidence that he procured this mortgage using a firm called Lotus Financial Consultancy as a mortgage broker.
(35) It was Mrs Akhtar's evidence that she signed a blank form of the mortgage application which was then completed by the mortgage broker. She was unaware of the information which was included in the form and provided to the lender.
(36) Harvey Lodge. The mortgage application to Santander was made by the appellant in or around July 2008. It was expressed to be an application for a remortgage and sought a loan of £223,000. It states that the use of the property is wholly owner occupation. It records that the appellant was employed as an IT manager by Arthur D Little from which employment he received a basic salary of £79,000 per year. Annexed to that application is a document ostensibly from that company which purports to be a payslip and records that as at 27 November 2008 the appellant's taxable gross pay was £52,666.64. It also records that tax and national insurance contributions had been deducted from that gross pay. The application form is signed by the appellant.
(37) It was the appellant's evidence the mortgage was arranged by Mr Abbasi either directly through his broker or through his brother. He signed this application form at the behest of Mr Abbasi's brother in blank and that it was then completed by someone other than himself. He was unaware of the information which was included in the form and provided to the lender.
(38) In a letter dated 12 April 2018 from Santander to Officer Marriot, Santander state that the mortgage account for this property was opened via the branch of the Abbey National plc on Kingsbury Road in London, and that they hold no documents to show that the account was opened by a broker.
(39) Furthermore, the information provided by Santander records that their identification checks were on a "Face to Face" basis, and that a document issued on 21 July 2008 was the photographic verification of the applicant's identification. Also enclosed with the Santander information was a photocopy of the photographic page of Mr Akhtar's passport which records that it was issued on 21 July 2008.
(40) Vincent Road. The mortgage application to the Halifax was made by the appellant on 20 April 2010. It sought a loan of £202,000. It declares that the appellant had made a profit for the year ended 31/08/2009 of £41,085. It also records that the appellant had been in receipt of rental income of £21,600. The application form was signed by the appellant.
(41) It was the appellant's evidence, corroborated by the application form itself, that he used a mortgage broker called Saan Financial Sols to obtain this mortgage.
(42) It was his evidence that he signed this application form in blank and that it was then completed by the mortgage broker. He was unaware of the information which was included in the form provided to the lender.
(43) Hill Street. The mortgage application to the Lancashire Mortgage Corporation was made by the appellant and was signed by him on 4 August 2014. It sought a loan of £142,000 and records that his net income for the previous year was £27,800 and that his projected net income was £37,800.
(44) The appellant's evidence, which was corroborated by the documents, was that this mortgage was secured through a mortgage broker, namely JP Consultants.
(45) Once again, the appellant's evidence was that he signed this application form in blank and was unaware of the information which was included in it and which was submitted by the broker to the lender.
(46) Barnard Lodge. The mortgage application to the Cheltenham and Gloucester was made by the appellant in May 2008. It records his gross annual income as £74,000 and his employer as the company. It seeks a loan of £365,500. A mortgage broker is identified in the documentary evidence as being Alexander Hall. Once again, it was the appellant's evidence that he signed the application form in blank at the behest of a mortgage broker who then submitted it to the lender. He was unaware therefore of the information that was contained in it.
(47) Rossmore Court. The mortgage application to GMAC was made by the appellant shortly before 1 October 2007. It seeks a loan of £261,000 and records the appellant's income as £87,000 from the company. The vendor of the property for which the loan was sought was Mrs Rubina Abbasi of Flat 95 Rossmore Court.
(48) The appellant's evidence which is corroborated by the documents was that the mortgage for this property was arranged by Lotus Financial Consultancy. It was not signed by Mr Akhtar.
(49) It was once again, Mr Akhtar's evidence that this was completed in blank and submitted on his behalf by the mortgage broker to the lender and he was therefore unaware of the contents of this application.
Funding and ownership: Mr Abbasi and Mr Dilawar Khan
Mr Abbasi
(50) Slough Road. HMRC have assessed the appellant to tax on £104,280 in respect of this property on the basis that it arose from the company. It is the appellant's evidence that it was provided by way of a mortgage and the balance (£81,000) was provided by Mr Abbasi.
(51) A document entitled "Sterling Transfer Form" records that on 25 July 2006 the sum of £14,500 was transferred from an account in the name of Miss R Abbasi and Mrs Ryhana Akhtar to the solicitors Harris Carter (solicitors acting on the purchase).
(52) It was the appellant's evidence that the deposit had originally been a gift by Mr Abbasi but which then became a loan, and the appellant repaid Mr Abbasi by way of 4 cheques totalling £79,662 following the sale by the appellant of a property in Slough for which he received £80,931.45.
(53) A bank statement shows that sum going into the appellant's bank account on 20 February 2007, and the subsequent payment of 4 cheques amounting, in total, to £79,662 from that account. Those cheques were cashed in March and April 2007.
(54) Barnard Lodge. HMRC have assessed the appellant to tax on £80,567 in respect of this property on the basis that it arose from the company. It is the appellant's evidence that this sum was provided by Mr Abbasi.
(55) Bank statements provided by the appellant show that a total sum of £80,447.45 had been paid into his account with the National Westminster Bank ("NatWest") between 20 March 2008 and 6 May 2008. It was the appellant's evidence that six entries reflecting payment into that account (and which make up that sum) came from Mr Abbasi. It is not possible to tell the source of these payments from the bank statements themselves, but in a letter dated 28 May 2013 from the NatWest to the appellant ("the NatWest letter"), NatWest confirm that two of those six payments, for £30,000 and £19,000, were cheques from accounts held by Mr Abbasi.
(56) A third payment for £11,447.45 is identified as "INWARD STG PYMT" stemming from Mr Ahmed Imtiaz. The appellant's evidence is that this was a friend of Mr Abbasi who transferred the funds to avoid international transfer fees from Pakistan.
(57) Payments of the three remaining amounts appear to be made by "credit" and do not record the source of payment.
(58) A declaration of trust dated 16 August 2008 between the appellant and Mr Abbasi, executed in Pakistan, records that the appellant, as trustee, holds Barnard Lodge on trust for Mr Abbasi absolutely and that the whole of the deposit and incidental costs of £79,100 for the purchase of Barnard Lodge were provided by Mr Abbasi.
(59) Harvey Lodge. HMRC have assessed the appellant to tax on £27,838 in respect of this property on the basis that it came from the company. It is the appellant's evidence that it came from Mr Abbasi.
(60) The appellant's bank statements show that on 10 November 2008 the sum of £23,983 was credited to his account which came in by way of a CHAPS transfer from LARI EXCHANGE. The appellant states that this is from Mr Abbasi.
(61) A declaration of trust dated 26 November 2008 between the appellant and Mr Abbasi, executed in Pakistan, records that the appellant as trustee holds Harvey Lodge upon trust for Mr Abbasi absolutely. It also records that Mr Akhtar was on that date, the sole registered proprietor of the property. Yet completion of the acquisition did not take place until 11 December 2008. It was Mr Akhtar's evidence that the reason that the declaration of trust predated the completion date was because he was visiting Mr Abbasi in Pakistan and they wanted confirmation of the position with Mr Abbasi's signature, "so it made sense to sign the Trust whilst I was there".
(62) It was also the appellant's evidence that on 31 May 2012 Mr Abbasi agreed that this property could be transferred to the appellant in consideration for the assumption, by the appellant, of various liabilities (the outstanding mortgage, mortgage arrears and accrued management charges). Although the mortgage was in the appellant's name, his evidence was that the deal was that the property was to be rented out by Mr Abbasi's brother who would collect the rent, maintain the property, and use that rent to repay the mortgage. However, the rent was not so collected and the mortgage fell into arrears.
(63) It was Mr Akhtar's evidence that the consideration for this transfer was obtained by way of a remortgage of his then main residence. No paperwork was prepared or signed for this transaction.
(64) Rossmore Court. HMRC have assessed the appellant to tax on £39,615 in respect of this property on the basis that the money came from the company. It is Mr Akhtar's evidence that it came from Mr Abbasi albeit in a somewhat roundabout way; namely via £40,000 paid by Mr Razak, a friend of Mr Abbasi, to the appellant.
(65) The appellant's evidence was that this property had originally been bought by Mr Abbasi in his wife's name, and his brother and son were living in that property. They fell behind with their mortgage and were threatened with repossession. Mr Abbasi asked the appellant to buy the property on his behalf. The appellant was therefore recorded as legal owner but the beneficial owner was Mr Abbasi.
(66) The appellant's bank statement shows that on 19 November 2007, £40,000 was credited to his account from account 600620. Annotated on the copy of that statement are the words "cheque from M Razak collected on behalf of [Mr Abbasi]. Deposit 95 Rossmore Ct".
(67) The NatWest letter confirms that the deposit of £40,000 into his account on 9 November 2007 came from Mr Razak.
(68) His bank statement also shows that the sum of £39,594.75 was transferred to Appleby Shaw solicitors (who acted on the purchase) on 22 November 2007.
(69) A declaration of trust dated 2 November 2007 and executed in Pakistan declares that the appellant as trustee holds Rossmore Court on trust for Mr Abbasi subject to the prior discharge of the GMAC mortgage which is recorded in the document as being £260,925. It also records that the whole of the deposit monies and incidental costs of £39,571.75 for the purchase of the property had been provided by Mr Abbasi.
Mr Dilawar Khan
(70) Vincent Road. HMRC have assessed the appellant to tax on £50,177 in respect of this property on the basis that it came from the company. The appellant's evidence is that this property was purchased on behalf of Mr Dilawar Khan with money provided by Mr Dilawar Khan.
(71) The appellant's bank statements with the NatWest show that sums of £10,000, £5,000, £20,000, £2,980, £4,100, £7,080 and £5,700, (which the appellant asserts were provided either directly by Mr Dilawar Khan or via his friends or agents) had been paid into the appellant's account in May and June 2010. Annotated scribblings against those entries identify them with Mr Dilawar Khan and with Vincent Road.
(72) Those bank statements also record that on 17 May 2010 the sum of £10,023 was paid to Appleby Shaw and a further sum of £38,900.69 was paid to them on 3 June 2010.
(73) The appellant's evidence is that although there was no written declaration of trust, he would hold the property in trust for Mr Dilawar Khan who would be responsible for paying the mortgage from the rent which the appellant would receive on his behalf. His further evidence is that he subsequently paid £50,000 to Mr Dilawar Khan from which date he became the beneficial owner of the property. This was paid in Pakistan by the appellant's brother who was in the Pakistan army. We were provided with no other evidence of this payment.
Mr Abbasi: source of funds
(74) In a letter dated 24 February 2016 from the Federal Board of Revenue of Pakistan ("the FBR") to Mr Tom Gardiner of HMRC (which responds to queries raised by Mr Gardiner) ("the FBR letter"), the FBR told HMRC that: Mr Abbasi had filed his annual tax returns for the tax years 2006 to 2014 and had declared nil income and paid zero tax in those years; he is known to be into real estate business; he has not declared any income on UK property rentals; based on the declarations made to the FBR, Mr Abbasi would not have the means to provide the deposits for the properties connected to the appellant, nor would he have had the means to provide funds for the maintenance of the various mortgages taken out in the appellant's name.
(75) In an order dated 30 June 2016 made by the FBR addressed to Mr Abbasi ("the FBR Order"), the FBR states that it had been provided with information by HMRC to the effect that he owned real estate in the UK and had received rent therefrom and based on that information: he had purchased Slough Road on 7 August 2006 for £540,000; he had purchased Bernard Lodge on 7 May 2008 for £429,000; he had purchased Harvey Lodge on 24 February 1999 for £135,000; he had purchased Rossmore Court on 28 November 2007 for £290,000 from which he had received rent; since he had not declared this purchase nor the source of his investment into it the FBR intended to tax the entire sale proceeds of £249,500: they intended to deem that he had received rent from these properties and tax those deemed rents.
Mr Akhtar; rents and tax returns
(76) Annexed to Mr Khan's witness statement is a schedule of rents received from the three rental properties, namely Barnard Lodge, Harvey Lodge and Vincent Road.
(77) These rents for 2008/2009-2013/2014 are reflected in paragraph 100 of the appellant's witness statement, which also includes rents for later years.
(78) For the tax years 2008/2009 and 2009/2010, rents were received from only Barnard Lodge and Harvey Lodge. There was no rental income from Vincent Road.
(79) The total rental received from these properties, for the following years, is set out below:
| 2008/2009 | £16,800 |
| 2009/2010 | £39,600 |
| 2010/2011 | £50,100 |
| 2011/2012 | £44,500 |
| 2012/2013 | £43,800 |
| 2013/2014 | £41,800 |
| 2014/2015 | £13,457 |
| 2015/2016 | £17,744 |
| 2016/2017 | £23,400 |
| 2017/2018 | £23,352 |
(80) The appellant returned no income from UK property in his tax returns for the years 2008/2009, 2009/2010, 2010/2011, and 2011/2012.
(81) In his tax return for 2012/2013, the appellant ticked box 4 (UK property income) and declared rent of £12,300 in box 20.
(82) In his tax return for 2013/2014, the appellant ticked box 4, and also box 3 of schedule 5 (that he jointly owned UK property ("box 3")) and declared rent of £11,300.
(83) In his tax return for 2014/2015, the appellant ticked box 4 and box 3 and declared rent of £6,728.
(84) In his tax return for 2015/2016, the appellant ticked box 4 and box 3 and declared rent of £8,872.
(85) In his tax return for 2016/2017, the appellant ticked box 4 and box 3 and declared rent of £11,700.
(86) In his tax return for 2017/2018, the appellant ticked box 4 and box 3 and declared rent of £11,676.
(87) Mr Khan explained the justification for these returns in the following way.
(88) For the years in which the rental properties were beneficially owned by third parties (Barnard Lodge and Harvey Lodge by Mr Abbasi and Vincent Road by Mr Dilawar Khan which was the position for the tax years 2008/2009 to 2011/2012) the appellant was not beneficially entitled to the rents and therefore there was no obligation for him to return them on his tax returns.
(89) For 2012/2013, the appellant was part of beneficial owner of Harvey Lodge and Vincent Road (the other beneficial owner being Mrs Akhtar). The rent from these properties in that tax year was £24,600 and the appellant declared rent of £12,300 in his return.
(90) For 2013/2014, the same was true as regards beneficial ownership. The rent from those two properties was £22,600, hence the reason why the tax return for this year declared rent of £11,300.
(91) The same principle applied to the subsequent tax years. The appellant's tax returns declared one half of the rent received.
The discovery: Officer Marriott's evidence
(92) Officer Mariott provided a witness statement and gave oral evidence on which he was cross examined. His evidence is set out below.
(93) He made the discovery on 27 August 2020. At the start of his oral evidence he said that this was because the appellant had been given numerous opportunities to provide explanations about the discrepancies in his returns and those explanations had either not been forthcoming or had been unsatisfactory. He therefore needed to raise an assessment for the insufficiency.
(94) At the end of his oral evidence he said that the assessments had been made on that date following the discovery. The amounts in those assessments could only be established when HMRC had received copies of the mortgage applications and in particular the mortgage application for Harvey Lodge which appeared to predate the declaration of trust relating to that property.
(95) The declaration of trust for Harvey Lodge was dated 26 November 2008 and included, in the recitals, the mortgage account number with Santander and the amount of mortgage outstanding at the date of the trust document. Yet the mortgage application was not made until 8 December 2008. The information on the trust document, therefore, is wholly inconsistent with the mortgage application which was not made until some 10 days later.
(96) Following a meeting with Mr Akhtar and Mr Khan, and members of HMRC, in November 2012, HMRC sought information and documents from the appellant relating to the enquiries which they were conducting into the appellant's tax affairs. HMRC had concerns about the funding relating to the various properties. They had been told that some of this money came from Mr Abbasi but had received no corroborating evidence.
(97) He raised concerns that this lack of independent evidence with Mr Khan in March 2016 and asked for copies of the mortgage application. These were not forthcoming and so he applied to the tribunal for third party information notices.
(98) By the beginning of December 2017, he had received copies of the mortgage application documents from the various lenders.
(99) These contain information which was very different from the information with which HMRC had been provided by the appellant. For example, the job descriptions and income of Mr Akhtar and Mrs Akhtar and the evidence from the payslips.
(100) He did not accept that the mortgage application forms had been completed in blank, signed by Mr Akhtar or Mrs Akhtar (as appropriate) and then submitted by the mortgage brokers. There was no corroborating evidence for this. Indeed, as regards the Santander mortgage, he had been told by Santander that the mortgage account was opened at a branch in London.
(101) There was no corroborating evidence that Mr Abbasi or Mr Dilawar Khan provided funds for the acquisition of any of the properties.
(102) Having said that, Officer Marriott did accept at the hearing that the evidence produced by the appellant for the hearing comprising the bank statements and, importantly, the NatWest letter did suggest that Mr Abbasi had provided some money to the appellant. The annotated version of that letter had been provided to HMRC on 15 August 2016.
(103) However no satisfactory explanations had been forthcoming regarding the reasons why funding was received in the roundabout way asserted by the appellant from a variety of individuals. No evidence has been provided by either Mr Abbasi or Mr Dilawar Khan that they provided funds. No address has been provided for Mr Dilawar Khan.
(104) It was also clear from the FBR letter that Mr Abbasi did not have the funds available to finance the acquisitions as alleged by the appellant.
(105) In his view, the only reasonable source of funds available to Mr Akhtar and Mrs Akhtar to pay for the acquisition of the properties, was one of the companies. There was no evidence that any money coming into the Akhtar family came from a source other than from the companies. The evidence from the mortgage applications was that they were receiving a great deal more money from the company than they had declared on their tax returns. The only source of funds for Mrs Akhtar was the company even though there was no evidence of her being employed by it. The only source of funds for funding the acquisition of the properties was untaxed remuneration derived from the company.
(106) He had not acquired bank statements for Mr Akhtar and Mrs Akhtar at the beginning of the enquiry but did so subsequently. In his view there were numerous deposits for which there was no clear explanation as to their source. He prepared a list of bank account credit entries and excluded certain of these where deposits could be identified. This was the case where documentary evidence showed that the source of the deposits was Mr Abbasi. He also further reduced the items on the list by applying a de minimis of £999.99 in an effort to reduce the number of entries for which an explanation was required. He issued an initial list of unexplained deposits on 2 May 2019. He had sought to remove from the list sums which may have been derived from Mr Akhtar's directors loan accounts with the companies.
(107) It was his view that Mr Akhtar had not engaged with HMRC in identifying or establishing sources from which these credit amounts had derived. After excluding deposits arising from known sources, there remained substantial unexplained deposits. In the absence of evidence to the contrary, his view was that those deposits arose from undeclared sources of income. The only source of that income was the companies, and this reinforced his conclusion that the deposits arose from undeclared and/or untaxed remuneration from Mr Akhtar's employment with the companies.
(108) He did not accept that Harvey Lodge had ever been beneficially owned by anyone other than the appellant. He did not accept the validity of the declarations of trust for the reasons given above. The property is registered in the sole name of Mr Akhtar. His view was that the gains arising on the sale of that property accrued exclusively to Mr Akhtar who was responsible for the tax.
(109) The same is true of the gains on the sale of Hill Street.
(110) In respect of both properties, he did not accept that there was a form of trust which resulted in Mrs Akhtar owning 50% of these properties. Whilst this had been asserted by Mr Akhtar and Mr Khan, there was no documentary evidence supporting it, and the conveyancing and registration documents made it clear that Mr Akhtar was the legal owner and therefore the beneficial owner.
(111) He did not profess to be an expert in trusts. He had not sought advice from others in HMRC in relation to the purported trusts regarding Mrs Akhtar and also the declarations of trusts involving Mr Abbasi. He had considered HMRC's manuals.
(112) As regards the rental income, the same principle applies as regards capital gains. There was no evidence that the rental properties were owned by anyone other than Mr Akhtar. No documentary evidence has been provided to justify the assertion that they were beneficially owned by anyone other than Mr Akhtar.
(113) He based his discovery on new information and not on information which had previously been disclosed to HMRC by Mr Akhtar during previous enquiries.
(114) His view was that Mr Akhtar had deliberately withheld information and submitted deliberately incorrect tax returns. The money for the purchase of the properties came from the company and not from third parties such as Mr Abbasi. This money was untaxed remuneration from the company. The appellant has been given numerous opportunities to explain the position but has failed to take them.
Mr Khan's evidence
(115) In addition to the oral evidence recorded above, Mr Khan gave the following evidence.
(116) He and his firm have been instructed to act for the appellant since February 2011.
(117) HMRC had opened an enquiry into the appellant's 2008/2009 tax return in January 2011. During the course of that enquiry, Mr Khan had provided HMRC with details of the various properties, together with details of the trusts between the appellant and Mr Abbasi.
(118) HMRC raised assessments for the tax years 2006/2007 to 2011/2012, on 3 October 2013. Those assessments were appealed on 10 October 2013. The assessments were based on rental income and benefits in kind.
(119) Following the COP 9 investigation and HMRC's request for information, he sent a letter to HMRC on 1 October 2014 which contained a great deal of information about the deposits for the purchase of the properties and their sources, the rental income, the declaration of trust for Harvey Lodge and various completion statements.
(120) During the course of 2016 and 2017 he provided HMRC with a great deal more information and documentation relating to their enquiry. It was his view that by March 2016, Officer Marriott had all the details in his possession concerning the properties including the source of funds for the acquisition, the involvement of Mr Abbasi and Mr Dilawar Khan and the declarations of trust. Indeed, HMRC were basing their assertions then on unexplained deposits which are the same issues which are before the tribunal at the hearing in 2023.
(121) If HMRC are correct and the source of funds for the purchase of the properties and the unexplained bank deposits was the company, this implies that the company made additional profit between 2006/2007 and 2010/2011 of £472,512. That simply cannot be achieved by a business of the size and nature of the company.
(122) Furthermore, HMRC further imply that between 2012/2013 and 2017/2018, the appellant also used £364,355 to fund acquisitions and that must have come from the companies. It is inconceivable that the companies could have been the source of these funds.
(123) HMRC had originally taxed the appellant twice on certain deposits, once under the heading of mortgages and secondly under the heading of bank deposits. However, this double taxation (and others) has now been ameliorated by HMRC's recalculations during the protracted hearing.
(124) With their letter of 27 August 2020, HMRC provided a list of bank deposits which they had included in their assessments amounting to £435,129.83. He has undertaken a thorough analysis of these deposits. As detailed in his witness statement, he has explained a legitimate source of deposits of £246,183.08. In respect of the remaining deposits (£188,946.75) he has provided a schedule itemising the source of these deposits which was based on the recollection of the appellant. It has not been possible to verify the source of these deposits as the banks have been reluctant to assist.
(125) HMRC have made various computational errors when assessing the gains on the disposal of Harvey Lodge.
(126) The gains on the disposal of Harvey Lodge and Hill Street, and the rents received in respect of Harvey Lodge and Vincent Road were based on the appellant's explanation that those properties were beneficially owned by the appellant and Mrs Akhtar in equal shares. And the returns were made on that basis.
(127) He did not accept that either he or the appellant had been dilatory in providing information to HMRC, nor that they had deliberately avoided meeting HMRC.
(128) In his view the rental properties were furnished and thus justified the deduction for the wear and tear allowance against the rent.
(129) He agreed that Mrs Akhtar should have submitted a return in 2013/2014 declaring the gain that she had made on her half interest in Harvey Lodge. Mr Akhtar declared a gain of £9,983, and Mrs Akhtar should have declared a gain of an equivalent amount. He then said that it was a conscious decision not to return this on Mrs Akhtar's tax return because it was within her annual exemption. He disagreed that this evidenced sole ownership by Mr Akhtar. If that had been the case, and Mr Akhtar would have declared the whole gain.
(130) There is a discrepancy regarding the date of acquisition of Harvey Lodge. Mr Akhtar says it was acquired on 31 May 2012, but the capital gains calculations state the date of acquisition as 1 February 2012. He accepted that the dates do not match which was a mistake on his part.
(131) In respect of his assertions of double counting and double taxation, he was taken through a number of bank statements and other bank deposits. He accepted that some of the information on which his double counting figures were based had come from the appellant. He did not accept that there was no evidence that Mr Abbasi had not provided funds. There are bank statements plus transfer documents to support the appellant's assertion. He accepted however there were no loan agreements. He denied that certain deposits into the appellant's and Mrs Akhtar's bank accounts were untaxed withdrawals by the appellant from the company.
(132) HMRC have assessed the appellant for £40,000 received on 11 August 2015 as undeclared takings from the companies when it was in fact money paid by Mr Abbasi in respect of the purchase of another property, 21 College Avenue. These payments are evidenced by the appellant's bank statements showing receipts on 23 December 2015 of £9,000 and £1,000, from Mr Abbasi, and of three further receipts from Sarwar and Mishtiaq of £10,000 in January 2016. He had been told by the appellant that these two individuals paid this money on behalf of Mr Abbasi.
(133) He assessed Mr Akhtar's ability to pay his outgoings against his declared income on an annual basis. It was his view that the rental income, salary, and occasional dividends, together with Mrs Akhtar's tax credits, were sufficient to maintain his standard of living, his trips to Pakistan, and his mortgage repayments on Slough Road.
(134) He had visited the premises of the company. He does VAT returns for the company every three months. He used the VAT returns to compile the corporation tax returns. He saw the driver's sheets which told him how many drivers were working in the company. He confirmed that it was 40 or so during the relevant period.
Mrs Akhtar's evidence
(135) She supported Mr Akhtar's evidence regarding Mr Abbasi's involvement, the fact that he funded the purchase of a number of the properties, and that there was ample evidence of this in the form of bank statements and cheque stubs.
(136) Mr Abbasi provided funds for the purchase of Slough Road. Initially this was by way of a gift but subsequently they treated it as a loan as they were able to pay back some of the money from the sale of another property.
(137) She has been married to Mr Akhtar for 31 years. It is Mr Akhtar who deals with finances and business matters. During that time they have shared everything on a 50/50 basis. The same is true of these properties. Even if they were registered in her name (as in Slough Road) or in Mr Akhtar's name (the other properties) the understanding was that they were owned equally by both of them.
(138) £100,000 of the proceeds from the sale of Harvey Lodge was paid into an HSBC bank account in her name. The balance was paid into Mr Akhtar's NatWest account.
(139) As to the mortgage documentation and her tax returns, she relied wholly on her husband and Mr Khan. She trusted them and took their advice. As far as she was concerned, all the documents submitted to HMRC by Mr Akhtar and on her behalf, were accurate. This was the case regarding any returns recording capital gains or rental income.
(140) She signed the mortgage application for Slough Road in blank. She had no knowledge of its detailed contents, nor the representations regarding her income which were made on her behalf in that application. They were provided by the mortgage broker and she knew nothing about them. She never questioned why she might be able to make a mortgage application for a loan of £459,000 based on a modest income. But she trusted Mr Akhtar, Mr Khan, and the mortgage broker, that even though the mortgage was in her name, it could be satisfied.
(141) The information given to GMAC, namely that Mr Akhtar was living with relatives and was separated, was incorrect. They have never been separated.
(142) She cannot remember saying, as she is recorded to have said, at paragraph 3 of the ADR exit document of 17 July 2017, that she had never received consultancy income which the company's accounts recorded had been paid to her.
(143) Even though there was no written evidence of any discussions between herself and her husband as to how they would share ownership of the properties, it was always the case that there was a common intention of owning them equally.
(144) She was responsible for cleaning, decorating and maintaining the rental properties. This took place between tenants leaving and moving in. She was also responsible for dealing with problems with the electrical systems or the gas system. She would clean up after an outgoing tenant and throw away what they had left. If their tenant had ruined the carpets, she was responsible for throwing these away and re-carpeting. This was the case even though there is nothing about providing these services in the tenancy agreement for Harvey Lodge. Mr Khan's statement that she had nothing to do with the running of the business or the rental of the properties, in his letter to HMRC on 12 August 2015, is incorrect.
Mr Akhtar's evidence
(145) In addition to the evidence given by the appellant and recorded earlier in this section of this decision, the appellant gave further evidence as set out below.
(146) It is not uncommon in Asian culture for family members to help each other out financially and that is what has happened in relation to these properties. Mr Abbasi has helped them out.
(147) The timing of the funds received from Mr Abbasi demonstrates that they were received for the specific property transactions in question and were not undeclared and untaxed income from the company.
(148) The proceeds from the sale of Hill Street £81,783.58 were paid into a joint account in the name of Mr Akhtar and Mrs Akhtar.
(149) The justification for the tax returns recording the capital gains and rental income for Mr Akhtar and Mrs Akhtar is as per the evidence given by Mr Khan. He trusted Mr Khan to submit correct information to HMRC and he understood those returns were correct. That is why he signed those returns. He provided Mr Khan with all relevant information. It was Mr Khan's responsibility to submit accurate returns.
(150) He also endorsed the evidence given by Mr Khan regarding the evidence which had been available to HMRC for many years prior to the date on which the assessments were made.
(151) The record in the ADR exit document (that Mrs Akhtar had not been paid consultancy income by the company and that such payment was fictitious) did not reflect the truth. It was simply said to get the matter sorted out. It was a mistake. He did not know whether Mrs Akhtar had received any money from the company.
(152) It was understood by himself and Mrs Akhtar that ownership of the properties, no matter whose name they were registered in, was shared equally between them. This is the case even if there is no document recording that beneficial ownership.
(153) However, it is clear from the way in which Harvey Lodge and Hill Street were acquired, and the way in which the disposal proceeds were paid to them, that they owned those properties in equal shares.
(154) He accepted that the mortgage payments on Slough Road, of approximately £1,420 per month, equated to approximately £17,000 per year. And that between 2006 and 2016, these were paid from his income from one of the companies. Yet in those years, he was declaring less on his tax returns than these amounts. His explanation for this discrepancy was that he had £20,000-£25,000 of savings.
(155) There were also losses on the rental properties, but these were funded by Mr Abbasi during those loss-making years as the properties were beneficially own by him during those years.
(156) If the information which was set out in the mortgage application forms had been given to the broker by his then accountant, then he had no idea what that information was. It is clear that the information regarding income, for example, is wholly fictitious.
(157) Notwithstanding the information provided by Santander (that the applicant for the mortgage attended the branch, there was no broker involved, and that the photographic identification, identified Mr Akhtar as the applicant) he did not recall meeting anybody or attending the branch of the bank. It was his evidence that he used a broker to apply for this mortgage.
(158) He accepted that he had been stunningly unlucky with the mortgage brokers all of whom appeared to be committing mortgage fraud.
(159) Documentary information regarding the source of funds from Mr Abbasi would have been available in 2012 but it was no longer available when HMRC were asking for it in 2016.
(160) He trusted Mr Dilawar Khan so there was no need to record his beneficial interest in the declaration of trust. Nothing was written down. It was simply an oral agreement.
(161) He denied that the source of funds for the acquisition of the various properties was undeclared and untaxed remuneration from the company.
(162) He acquired Harvey Lodge from Mr Abbasi on 31 May 2012.
(163) The document prepared by Mr Khan which purports to explain deposits of money into Mr Akhtar's account which had no other explanation, was based on his recollection of those transactions which he gave to Mr Khan even though he did not have the primary documents (the bank statements) in his possession at that time.
The adjusted liabilities
(164) As mentioned above, the assessments are based on four amounts, namely: unexplained property deposits, unexplained bank deposits, undeclared gains and undeclared rental income.
(165) The amounts of these have fluctuated during the course of the protracted hearing as HMRC have made concessions and there have been discussions about double counting.
(166) Our understanding of the current position is set out below. That understanding is based on a table which was contained in Ms Brown's closing submissions, and which HMRC, in their subsequent submissions, did not gainsay. However, there are some arithmetical inaccuracies – in particular in the figures for 2014/2015 and 2015/2016.
| 2006/2007 | Deposit Slough Road £104,280.00 |
| 2007/2008 | Deposit Rossmore Court £39,615.00 |
| 2008/2009 | Deposit Barnard Lodge £80,567.00 Deposit Harvey Lodge £27,838.00 Other Costs Rossmore Court £7,377.00 Bank Deposits £31,034.00 Total: £146,816.00 |
| 2009/2010 | Other Costs Rossmore Court £10,981.00. |
| 2010/2011 | Deposit Vincent Road £50,177.00 |
| 2011/2012 | N/A |
| 2012/2013 | Rental Income (£5,243.00) Bank Deposits £50,380.00 Total: £45,137.00 |
| 2013/2014 | Rental Income (£5,367.00) Bank Deposits £68,631.43 Gains from disposal of Harvey Lodge £103,204.00 Total: £166,468.43 |
| 2014/2015 | Rental Income £3,600.00 Bank Deposits £48,838.68 Total: £57,934.68 |
| 2015/2016 | Rental Income £3,600.00 Bank Deposits £123,280.72 Gains from disposal of Hill Street £14,236.00 Total: £142,166.72 |
| 2016/2017 | Rental Income £3,600.00 Bank Deposits £47,500.00 Total: £51,100.00 |
| 2017/2018 | Rental Income £3,600.00 Bank Deposits £4,225.00 Total: £7,825.00 |
(167) These are not the amounts of tax. They are the amounts of undeclared income and gains on which, HMRC say, the appellant is liable to tax.
DISCUSSION
Submissions
(1) Discovery and unexplained deposits. Officer Marriott has satisfied both the subjective and objective conditions set out in Jerome Anderson v HMRC [2018] UKUT 159 ("Anderson"). His evidence was that he was supplied with a substantial amount of documentation which he analysed. He formed a reasonable view that there was an insufficiency on the basis of that documentation. A reasonable officer would have come to the same view.
(2) The basis of this view was that there were large numbers of unexplained deposits in the appellant's bank account. He did not accept that these funds, many of which had been used to fund the acquisition of the various properties, had come from Mr Abbasi or Mr Dilawar Khan. There was insufficient independent evidence of these sources of funding. In any event, the FBR letter is clear evidence that Mr Abbasi could not have afforded to fund the appellant as he alleges.
(3) The appellant has not explained the source of these deposits in a satisfactory way.
(4) Officer Marriott received new information after the 2013 assessments. His evidence was that it was only once he tied up the mortgage application form relating to Harvey Lodge and realised that it post-dated the associated declaration of trust that he decided that he should issue an assessment for the insufficiency. That was in August 2020. In any event, even if he had that information before him earlier, there is nothing wrong with him making a fresh discovery. There is no concept of staleness in relation to discovery assessments.
(5) The assessments were made to best judgment. They were not capricious. They were evidence-based. The size of the assessment is reasonable given that it effectively assesses about £29,000 per year for each of 12 years. This is reasonable for a business such as that carried on by the companies. There are around 40 drivers in the business (Mr Akhtar had previously said there were between 40 and 50) and the additional income could be provided by each driver earning an additional £6 per day over the relevant period.
(6) Furthermore, Officer Marriott excluded identified deposits such as earnings and also applied a de minimis of £999.99 in an effort to reduce the number of entries on the unknown banking schedule.
(7) The appellant's behaviour was clearly deliberate. The scale of the omissions from his tax returns indicate that he must have known that they were wrong.
(8) He and Mrs Akhtar clearly provided incorrect information to the lenders on their mortgage application forms. It is inconceivable that the appellant was party to successive mortgage frauds. The appellant signed the application forms and those reflect income which was not declared to HMRC.
(9) The evidence from Santander clearly shows that the mortgage application in relation to Harvey Lodge did not involve a mortgage broker and was made by the appellant at the bank's premises in London.
(10) He failed to declare the rental income properties which he beneficially owned.
(11) There is no evidence of any discussions between himself and Mrs Akhtar regarding joint ownership of the properties. There is no evidence from Mr Abbasi confirming that he provided funds and that properties were held on trust for him.
(12) Even if the declarations of trust ostensibly in favour of Mr Abbasi, are accepted at face value, that is not evidence that Mr Abbasi provided funds for the purchase of the properties. It is clear that money did come into the appellant's bank account to fund the purchases. It is not accepted, however, that those funds came from Mr Abbasi.
(13) If these behaviours are not deliberate, then they are careless.
(14) Trusts. As regards trusts for Mr Abbasi and Mr Khan, HMRC accept that there was a valid declaration of trust in favour of Mr Abbasi in respect of Barnard Lodge. They have also (mistakenly) accepted that there was a valid declaration of trust over Rossmore Court in his favour. However, the declaration of trust in respect of Harvey Lodge is clearly invalid as it is dated 28 November 2008, yet identifies the Santander mortgage account which was not opened until some 10 days later, and records that the appellant was, at the time of its execution, the registered proprietor of the property which was not the case (completion of the purchase took place in December 2008).
(15) Even if Mr Abbasi and Mr Dilawar Khan provided funds for the acquisition of these properties, that does not mean that there was a trust in their favour.
(16) It is for the appellant to justify that there is a constructive or resulting trust in favour of other people. He cites Westdeutsche [1996] 2 AER 961 as authority for the principle that a resulting trust is presumed to arise where a person makes a payment towards the purchase of the property or other asset which is vested in another party's sole name or in joint names. In such circumstances, the presumption is that the property or other asset is held on trust for the joint purchasers in proportion to their contributions.
(17) Although there is evidence of money going into the appellant's bank account, there is no satisfactory evidence that came from either Mr Abbasi or Mr Dilawar Khan. Indeed, the FBR letter demonstrates that Mr Abbasi did not have the funds to either give or lend to the appellant to fund the purchases.
(18) There is no satisfactory evidence to support Mr Akhtar's assertion that although he was not the beneficial owner of Harvey Lodge or Vincent Road, that beneficial interest was transferred to him on some subsequent date.
(19) As regards the trusts which Mr Akhtar asserts are in place and pursuant to which the beneficial ownership of the properties is shared equally between himself and Mrs Akhtar, he submits that there is no evidence of any common intention on the part of the appellant and Mrs Akhtar that the beneficial ownership of the properties should be different from the legal ownership. The relevant principles can be found in the cases of Stack v Dowden [2007] 2 AC 432 ("Stack") and Jones v Kernot [2012] 1 AC 776 ("Jones").
(20) The common intention is to be deduced objectively in the context of the party's conduct. Furthermore, a party claiming the existence of a constructive trust must prove that they have acted to their detriment in reliance upon that intention.
(21) Neither Mr Akhtar nor Mrs Akhtar in their evidence, deal with how their common intention and agreement or understanding came about other than by virtue of being married. This is not enough. Business assets owned by one spouse do not become the assets of the other spouse simply by virtue of being married. The principles of common intention constructive trusts still need to be established. Beneficial ownership cannot arise just because a couple are husband and wife.
(22) Nor can it arise because money passed through joint accounts, or through the accounts of one or other of them.
(23) There is a considerable tax benefit to Mr Akhtar and Mrs Akhtar of there being a constructive trust.
(24) There must also be detrimental reliance on a common intention. There has been none. Indeed, there could not have been since there is no common intention.
(25) Gains and rental income. Given that the relevant properties have been beneficially owned throughout by the appellant, it was he who should have returned all of the gains and all of the rental income in his tax returns.
(26) There is no justification for Mr Khan treating the rental properties as being furnished and thus claiming wear and tear allowance against the rental income.
(27) There is no justification for the miscellaneous expenses which appears to be the same figure each year for every property. No documentary corroboration of these expenses has been provided. It was just an estimate.
(28) Mr Akhtar says he acquired beneficial ownership of Vincent Road in December 2011. He should therefore have declared rent from that property in his 2011/2012 tax return. No rental income has been declared on that return.
(29) Furthermore, Mrs Akhtar did not register for self-assessment until 2015/2016, so that half of the rents for Harvey Lodge and Hill Street, which should have been declared by Mrs Akhtar on a tax return for the years under assessment in which beneficial ownership was (on the appellant's case) shared between the appellant and Mrs Akhtar, was not so declared.
(30) Gains on the sale of Harvey Lodge should be calculated on the basis of an acquisition in 2008 and not in 2012 (from Mr Abbasi). There is no evidence of any such transfer in 2012. Any gain should be apportioned solely to the appellant. As should the gain arising on Hill Street.
(1) Discovery and unexplained deposits. The burden of establishing that HMRC had made a valid discovery followed by the issue of valid assessments lies with HMRC.
(2) Officer Marriott's evidence about his making of the discovery was vague and inconsistent. When asked why he had made a discovery in August 2020, he initially said that the appellant had been given numerous opportunities to explain the financial discrepancies yet satisfactory explanations had not been forthcoming. However, he subsequently said that the trigger for the discovery and subsequent assessment was the information relating to the Harvey Lodge declaration of trust and the inconsistency of dates between that and the mortgage application.
(3) The only evidence, therefore, of there being any discovery is in respect of Harvey Lodge. There is no evidence of the officer's subjective view in relation to the other properties nor when a discovery was made in respect of those.
(4) As far as the objective test is concerned, no reasonable officer could have believed that there was an insufficiency. The appellant has provided copious information to HMRC. It is disingenuous to suggest that he had not explained the ostensible financial discrepancies. HMRC have sat on the information with which had been provided for years before making a discovery.
(5) Furthermore, the fact that so many adjustments have been made to the original assessments both immediately before and then during the protracted hearings, demonstrates that the assessments were not made to best judgment. This is demonstrated too by the approach to the declarations of trust.
(6) The officer's approach to the declarations of trust is inconsistent. The declaration in respect of Harvey Lodge was rejected as invalid on the basis that it appears to post-date the purchase date. Yet the same is true of Barnard Lodge, where the declaration of trust has been accepted as valid.
(7) Furthermore, Officer Marriott claimed that he could not recall whether he took specialist trust advice, notwithstanding that he was not a trust expert. Yet it is clear from documents relating to the previous appeal that he had sought such advice.
(8) HMRC have not demonstrated either deliberate or careless behaviour on the part of the appellant. HMRC's allegations of deliberate behaviour focus on the mortgage applications. No specific allegations were made to the appellant that he had been consciously involved in a mortgage fraud. The appellant's evidence has always been that they were unwitting parties and had signed blank forms. The information recorded in those applications, therefore, is not evidence of, for example, income of either Mr Akhtar or Mrs Akhtar.
(9) The fact that the mortgage application for Rossmore Court was unsigned is of significant relevance and demonstrates that the appellant could not have approved this application or the details in it.
(10) There is clear and satisfactory evidence that the source of funds for the properties was not, as asserted by HMRC, untaxed withdrawals from the companies, but was provided by Mr Abbasi and Mr Dilawar Khan. This is the oral evidence of Mr Akhtar and Mrs Akhtar, which is corroborated by the declarations of trust (as regards Mr Abbasi) and the bank statements and the NatWest letter.
(11) Mr Khan's evidence is that the company could not have generated the additional funds which HMRC submits were withdrawn from the company in untaxed form and which comprise the unexplained deposits. Indeed, he has explained deposits of £256,183.08 out of the assessed amount of £435,129.83. Further explanations have been provided by the appellant as to the sources of the balance.
(12) HMRC's reliance on the FBR letter to justify their submission that Mr Abbasi could not have afforded to fund the property acquisitions as asserted by the appellant, is misconceived. It is unsurprising that the FBR thought that Mr Abbasi did not have the means to provide deposits for the properties, since they were based on declarations made by Mr Abbasi to the FBR in which he had declared no income from UK property rentals.
(13) To the contrary, the correspondence with the FBR demonstrates that Mr Abbasi did have UK property interests. The issue was that he had failed to declare those to the FBR.
(14) Trusts. There is ample evidence that Mr Abbasi provided funds to Mr Akhtar and Mrs Akhtar to enable them to purchase various properties, and there is therefore a common intention constructive trust in favour of Mr Abbasi (over and above the express declarations of trust in relation to Rossmore Court, Harvey Lodge, and Barnard Lodge).
(15) The fact that the declarations for Barnard Lodge and Harvey Lodge post-date the acquisitions of those properties is simply because the appellant was in Pakistan before those acquisitions were completed and took the opportunity to get them signed by Mr Abbasi, and attested, before his return to the UK.
(16) There is no legal requirement for any resulting, implied or constructive trust to be in writing.
(17) The key principles to determine the existence of a common intention constructive trust are derived from Jones. There must be a common intention that Mrs Akhtar had a beneficial interest, and it is clear from Mr Akhtar's and Mrs Akhtar's written and oral evidence that as husband and wife everything they owned was shared equally.
(18) Furthermore, common intention is evidenced by the maintenance work (painting, decorating, throwing out carpets, contacting electricity and gas people, dealing with appointments at the rental properties and cleaning) undertaken by Mrs Akhtar in relation to the rental properties. Such non-financial contributions can be evidence of beneficial ownership (Stack).
(19) This evidence rebuts the presumption that beneficial ownership follows legal ownership.
(20) Detrimental reliance is only relevant where a court is being asked to intervene because one party is denying the other their beneficial entitlement and it would be unfair to ignore an understanding between those parties on which a claimant had relied to their detriment. This is not the situation in this appeal where the evidence is there is an express constructive trust in favour of Mr Akhtar and Mrs Akhtar.
(21) HMRC's guidance at CG 22020 stated, at the relevant time, "it is common for title to the assets of a married couple or of civil partners of each other to be held by one of them on behalf of both".
(22) Gains and rental income. Given that there were constructive trusts of the relevant properties at the relevant times, the gains and rental income reported to HMRC on the appellant's tax returns was correct. The acquisition cost for Harvey Lodge should be calculated at May 2012 which was the date when the appellant acquired the beneficial ownership of the property from Mr Abbasi (and not February 2012 which was Mr Khan's error).
(23) There is no legal requirement for that transfer of beneficial ownership to be in writing. There was no reason why Mr Akhtar should be making this up. There is clear evidence that Mr Abbasi had beneficial ownership and maintaining that position would mean that Mr Abbasi would have suffered the tax rather than Mr Akhtar.
(24) HMRC have accepted that the rental income was assessed in the 2013 assessments and the only years in question therefore are 2012/2013 to 2017/2018. The amounts regarding miscellaneous expenses and wear and tear are very modest. It was not put to either Mr Akhtar or Mrs Akhtar that the premises were unfurnished. Mr Khan's understanding that they were furnished came from conversations with Mr Akhtar who told him that the tenants were provided with beds, tables, chairs, a fully equipped kitchen and bathroom.
Our view
The discovery assessment issue
A valid discovery?
"The subjective test
25. It is clear that before an officer makes a discovery assessment, he must have formed a certain state of mind. The question raised on this appeal is: what must the officer think or believe? The three judges in the Divisional Court in R v Kensington Income Tax Commissioners all agreed that it was not necessary for the officer to reach a conclusion which was justified by sufficient legal evidence. However, when describing what was required for this purpose, the three judges expressed themselves in different terms which do not appear to us to describe the same test.
26. Any test which is devised as to the necessary subjective belief on the part of the officer must be a practical and workable test. The expression of the test has to recognise that at the time when an officer thinks that it is desirable to make a discovery assessment, the officer may appreciate that in certain respects he may not be in possession of all of the relevant facts. Further, the officer may foresee that a discovery assessment might give rise to questions of law some of which might not be straightforward.
27. In Revenue and Customs Commissioners v Lansdowne Partners Ltd Partnership, when considering the meaning of "be aware of" for the purposes of s 29(5), it was said that "awareness" was a matter of perception not conclusion and that it was possible to say that an officer was "aware of" something even when he could not at that stage resolve points of law and even though he was not then aware of all of the facts which might turn out to be relevant. Although the word "discover" and the phrase "be aware of" cannot be treated as synonyms, we consider that if it is possible to be aware of something when one does not know all of the relevant facts and one cannot foretell how relevant points of law will be resolved, it cannot be said to be premature for an officer to "discover" that same something even when he knows he is not in possession of all of the relevant facts and does not know how relevant points of law will be resolved.
28. In Sanderson, Patten LJ described the power under section 29(1) in this way:
"The exercise of the section 29(1) power is made by a real officer who is required to come to a conclusion about a possible insufficiency based on all the available information at the time when the discovery assessment is made".
We consider, with respect, that this test is in accordance with the earlier authorities. This passage describes the test somewhat briefly because, of course, that case concerned s 29(5) rather than s 29(1). Having reviewed the authorities, we consider that it is helpful to elaborate the test as to the required subjective element for a discovery assessment as follows:
"The officer must believe that the information available to him points in the direction of there being an insufficiency of tax".
That formulation, in our judgment, acknowledges both that the discovery must be something more than suspicion of an insufficiency of tax and that it need not go so far as a conclusion that an insufficiency of tax is more probable than not.
The objective test
29. The authorities establish that there is also an objective test which must be satisfied before a discovery assessment can be made. In R v Bloomsbury Income Tax Commissioners, the judges described the objective controls on the power to make a discovery assessment. Those controls were expressed by reference to the principles of public law. In Charlton at [35], the Upper Tribunal referred to the need for the officer to act "honestly and reasonably".
30. The officer's decision to make a discovery assessment is an administrative decision. We consider that the objective controls on the decision making of the officer should be expressed by reference to public law concepts. Accordingly, as regards the requirement for the action to be "reasonable", this should be expressed as a requirement that the officer's belief is one which a reasonable officer could form. It is not for a tribunal hearing an appeal in relation to a discovery assessment to form its own belief on the information available to the officer and then to conclude, if it forms a different belief, that the officer's belief was not reasonable".
"In our judgment, no new information, of fact or law, is required for there to be a discovery. All that is required is that it has newly appeared to an officer, acting honestly and reasonably, that there is an insufficiency in an assessment. That can be for any reason, including a change of view, change of opinion, or correction of an oversight. The requirement for newness does not relate to the reason for the conclusion reached by the officer, but to the conclusion itself….".
Timing of the assessments
"42. The question is whether it means (i) a deliberate statement which is (in fact) inaccurate or (ii) a statement which, when made, was deliberately inaccurate. If (ii) is correct, it would need to be shown that the maker of the statement knew it to be inaccurate or (perhaps) that he was reckless rather than merely careless or mistaken as to its accuracy.
43. We have no hesitation in concluding that the second of those interpretations is to be preferred, for the following reasons. First, it is the natural meaning of the phrase "deliberate inaccuracy". Deliberate is an adjective which attaches a requirement of intentionality to the whole of that which it describes, namely "inaccuracy". An inaccuracy in a document is a statement which is inaccurate. Thus the required intentionality is attached both to the making of the statement and to its being inaccurate".
The unexplained bank deposits issue
Background
Methodology
| Year ended 5 April 2009 | £ 31,034.00 |
| Year ended 5 April 2013 | £ 50,380.00 |
| Year ended 5 April 2014 | £ 68,631.43 |
| Year ended 5 April 2015 | £ 48,838.68 |
| Year ended 5 April 2016 | £123,280.72 |
| Year ended 5 April 2017 | £ 47,500.00 |
| Year ended 5 April 2018 | £ 4,225.00 |
This amounts to a total of £373,889.83 of deposits to the bank accounts of the appellant and Mrs Akhtar (whether the accounts were in their sole names or were joint accounts).
(1) Bank statements; The narrative on the bank statements usually comprises either the name of the party making payments to the appellant's bank accounts, transfer from other bank accounts or simply a reference number relating to a paying in slip or a branch reference. However, there are occasions where the bank statements/schedule of deposits have been annotated by the appellant and/or his agent to provide an explanation for the source of the funds.
(2) Cheque stubs.
(3) The NatWest letter.
(4) Oral evidence from the appellant and Mr Khan.
(1) 5 April 2013 - £30,000 – whereas the bank statement refers to '010531', the summary schedule has been annotated 'M M Abassi'. However, no supporting third party evidence has been put before the Tribunal in support of the explanation, either in the form of a witness statement from Mr Abassi or otherwise. In our view the appellant has not demonstrated to our satisfaction that the amount should not be included in the assessment.
(2) 13 December 2013 - £20,675 – whereas the bank statement refers to 'Cash & Dep m/c', the summary schedule has been annotated 'Asad Abassi Loan Return '. However, no supporting third party evidence has been put before the Tribunal in support of the explanation, either in the form of a witness statement from Mr A Abassi or details and timing and amounts originally advanced to Mr A Abassi. Therefore, in our view, the appellant has not demonstrated to our satisfaction that the amount should not be included in the assessment.
(3) 11 June 2015 - £40,000 – whereas the bank statement refers to 'Cheque Paid In'; the appellant has provided a copy of a cheque drawn on an account in the name of M M Abassi. We consider that this should not be included in the additional amounts assessed on the appellant.
(4) 12 January 2016 - £10,000 – whereas the bank statement refers to 'S Sarwar M Ishtiaq', the summary schedule includes an annotation that this relates to the purchase of a property at College Avenue. We have considered the appellant's evidence that these were agents for Mr Abassi and the supporting evidence that the purchase of the property in the name of Mrs Akhtar took place in February 2016. We consider that this should not be included in the additional amounts assessed on the appellant.
(5) 12 January 2016 - £10,000 – whereas the bank statement refers to Cash & Dep m/c', the summary schedule includes an annotation that this relates to purchase of College Avenue. However, there is no third-party supporting evidence as to the source of these funds, there is no named third party on the bank statement. In our view the appellant has not demonstrated to our satisfaction that the amount should not be included in the assessment.
Conclusion
| Year ended 5 April 2009 | £ 33,400.00 |
| Year ended 5 April 2013 | £ 39,500.00 |
| Year ended 5 April 2014 | £ 52,631.43 |
| Year ended 5 April 2015 | £ 29,734.68 |
| Year ended 5 April 2016 | £ 27,140.72 |
| Year ended 5 April 2017 | £ 26,940.00 |
| Year ended 5 April 2018 | £ 10,785.00 |
This amounts, in total, to £220,131.83.
The property deposits issue
Mr Abbasi
Dilawar Khan
The ownership issue
(1) In the absence of any written declaration or agreement, a constructive trust may arise where it can be established that there was firstly a common intention between the legal owner and the beneficiary that the beneficiary should have a beneficial interest in the property, and secondly that the beneficiary has acted to his or her detriment on the basis of that common intention.
(2) Contributions made by the beneficiary may corroborate direct evidence of intention and also show that the beneficiary has acted to his or her detriment in reliance on that common intention.
Background
Harvey Lodge
Vincent Road
Hill Street
Mr and Mrs Akhtar - constructive trust?
CONCLUSION
(1) The discovery assessments were valid in time assessments.
(2) They benefit from the extended 20 year time limit.
(3) The unexplained deposits set out at [87] are untaxed withdrawals from the companies to which the appellant is liable to income tax for those tax years.
(4) The contributions to the purchase of Slough Road, Harvey Lodge, Barnard Lodge, and Rossmore Court, along with associated additional costs, were, as asserted by the appellant made by Mr Abbasi.
(5) The contribution to the purchase of Vincent Road, along with associated additional costs, was, as asserted by the appellant, made by Mr Dilawar Khan.
(6) Beneficial ownership of Harvey Lodge was vested in Mr Abbasi from the date on which that property was purchased until it was subsequently conveyed to the appellant on 31 May 2012.
(7) Beneficial ownership of Vincent Road was vested in Mr Dilawar Khan from the date on which that property was purchased until it was subsequently conveyed to the appellant.
(8) On and from the dates on which the beneficial ownership of Harvey Lodge and Vincent Road were conveyed to him by the relevant beneficial owner, and on and from the date of acquisition of Hill Street, those properties were held by the appellant on trust for himself and Mrs Akhtar, in equal shares.
DISPOSITION
RIGHT TO APPLY FOR PERMISSION TO APPEAL
TMA
(1) If an officer of the Board or the Board discover, as regards any person (the taxpayer) and a year of assessment—
(a) that any income which ought to have been assessed to income tax, or chargeable gains which ought to have been assessed to capital gains tax, have not been assessed, or
(b) that an assessment to tax is or has become insufficient, or
(c) at any relief which has been given is or has become excessive, the officer or, as the case may be, the Board may, subject to subsections (2) and (3) below, make an assessment in the amount, or the further amount, which ought in his or their opinion to be charged in order to make good to the Crown the loss of tax.
(2) …
(3) Where the taxpayer has made and delivered a return under section 8 or 8A of this Act in respect of the relevant year of assessment, he shall not be assessed under subsection (1) above—
(a) in respect of the year of assessment mentioned in that subsection; and
(b) in the same capacity as that in which he made and delivered the return, unless one of the two conditions mentioned below is fulfilled.
(4) The first condition is that the situation mentioned in subsection (1) above was brought about carelessly or deliberately by the taxpayer or a person acting on his behalf.
(5) The second condition is that at the time when an officer of the Board—
(a) ceased to be entitled to give notice of his intention to enquire into the taxpayer's return under section 8 or 8A of this Act in respect of the relevant year of assessment; or
(b) informed the taxpayer that he had completed his enquiries into that return, the officer could not have been reasonably expected, on the basis of the information made available to him before that time, to be aware of the situation mentioned in subsection (1) above.
(6) For the purposes of subsection (5) above, information is made available to an officer of the Board if—
(a) it is contained in the taxpayer's return under section 8 or 8A of this Act in respect of the relevant year of assessment (the return), or in any accounts, statements or documents accompanying the return;
(b) it is contained in any claim made as regards the relevant year of assessment by the taxpayer acting in the same capacity as that in which he made the return, or in any accounts, statements or documents accompanying any such claim;
(c) it is contained in any documents, accounts or particulars which, for the purposes of any enquiries into the return or any such claim by an officer of the Board, are produced or furnished by the taxpayer to the officer … or
(d) it is information the existence of which, and the relevance of which as regards the situation mentioned in subsection (1) above—
(i) could reasonably be expected to be inferred by an officer of the Board from information falling within paragraphs (a) to (c) above; or
(ii) are notified in writing by the taxpayer to an officer of the Board.
(7) In subsection (6) above—
(a) any reference to the taxpayer's return under section 8 or 8A of this Act in respect of the relevant year of assessment includes—
(i) a reference to any return of his under that section for either of the two immediately preceding chargeable periods…
(ia) … and
(ii) where the return is under section 8 and the taxpayer carries on a trade, profession or business in partnership, a reference to any partnership return with respect to the partnership for the relevant year of assessment or either of those periods; and …
34. Ordinary time limit of 4 years
(1) Subject to the following provisions of this Act, and to any other provisions of the Taxes Acts allowing a longer period in any particular class of case, an assessment to income tax, capital gains tax or to tax chargeable under section 394(2) of the Income Tax (Earnings and Pensions) Act 2003 may be made at any time not more than 4 years after the end of the year of assessment to which it relates.
(2) An objection to the making of any assessment on the ground that the time limit for making it has expired shall only be made on an appeal against the assessment.
36. Loss of tax brought about carelessly or deliberately etc
(1) An assessment on a person in a case involving a loss of income tax or capital gains tax brought about carelessly by the person may be made at any time not more than 6 years after the end of the year of assessment to which it relates (subject to subsection (1A) and any other provision of the Taxes Acts allowing a longer period).
(1A) An assessment on a person in a case involving a loss of income tax or capital gains tax-
(a) brought about deliberately by the person…
may be made at any time not more than 20 years after the end of the year of assessment to which it relates (subject to any provision of the Taxes Acts allowing a longer period).
(1B) In subsections (1) and (1A), references to a loss brought about by the person who is the subject of the assessment include a loss brought about by another person acting on behalf of that person…
(1)– (5) ……….
(6) If, on an appeal notified to the tribunal, the tribunal decides—
(a) that, . . . the appellant is overcharged by a self-assessment;
(b) that, . . . any amounts contained in a partnership statement are excessive; or
(c) that the appellant is overcharged by an assessment other than a self-assessment, the assessment or amounts shall be reduced accordingly, but otherwise the assessment or statement shall stand good.
(7) If, on an appeal notified to the tribunal, the tribunal decides—
(a) that the appellant is undercharged to tax by a self-assessment . . .
(b) that any amounts contained in a partnership statement . . . are insufficient; or
(c) that the appellant is undercharged by an assessment other than a self-assessment, the assessment or amounts shall be increased accordingly.
(1) We are in the same position as the Court of Appeal in Hudson v Hathway [2022] EWCA Civ 1648 ("Hudson").
"[32] We are concerned in this appeal with property rights in land, not with discretionary adjustments to property rights. The creation and transfer of property rights in land must, as a general rule, comply with statutory formalities. Such formalities are necessary in order that property rights in land should be certain. The most important of such formalities are those laid down by section 2 of the Law of Property (Miscellaneous Provisions) Act 1989 (contracts for the sale or creation of interests in land must be in signed writing) and section 53(1) of the Law of Property Act 1925 (declarations of trust of land or an interest in land to be manifested by signed writing; and dispositions of subsisting equitable interests to be made by signed writing). Section 2 applies to executory contracts for the disposition of interests in land, but not to instruments which effect an immediate disposition. Section 53(1), on the other hand, applies to instruments which effect an immediate disposition of an interest. Although the distinction has been described as elusive, it is nevertheless well settled: Rollerteam Ltd v Riley [2017] Ch 109(referring to previous authority)".
(2) Section 53(1) of the Law of Property Act 1925 ("LPA") relevantly provides: "… (a) no interest in land can be created or disposed of except by writing signed by the person creating or conveying the same, or by his agent thereunto lawfully authorised in writing, or by will, or by operation of law; (b) a declaration of trust respecting any land, or any interest therein must be manifested and proved by some writing signed by some person who is able to declare such a trust or by his will: (c) a disposition of an equitable interest or trust subsisting at the time of the disposition, must be in writing signed by the person disposing of the same, or by his agent thereunto lawfully authorised in writing or by will".
(3) Section 53 (2) LPA provides: "This section does not affect the creation or operation of resulting implied or constructive trusts".
(4) A valid trust can only be created if the three certainties are present, namely certainty of intention, certainty of subject matter, and certainty of beneficial objects.
(5) The law on resulting trusts is clearly set out in Westdeutsche Landesbank Girozentrale v Islington LBC [1996] AC 669 at 708 ("Westdeutsche"):
"Under existing law a resulting trust arises in two sets of circumstances: (A) where A makes a voluntary payment to B or pays (wholly or in part) for the purchase of property which is vested either in B alone or in the joint names of A and B, there is a presumption that A did not intend to make a gift to B: the money or property is held on trust for A (if he is the sole provider of the money) or in the case of a joint purchase by A and B in shares proportionate to their contributions. It is important to stress that this is only a presumption, which presumption is easily rebutted either "by the counter-presumption of advancement or by direct evidence of A's intention to make an outright transfer: see Underhill and Hayton, Law of Trusts and Trustees, pp. 317 et seq.; Vandervell v. Inland Revenue Commissioners [1967] 2 AC 291, 312 et seq.; In re Vandervell's Trusts (No. 2) [1974] Ch 269, 288 et seq. (B) Where A transfers property to B on express trusts, but the trusts declared do not exhaust the whole Q beneficial interest: ibid, and Quistclose Investments Ltd. v. Rolls Razor Ltd (In Liquidation) [1970] AC 567. Both types of resulting trust are traditionally regarded as examples of trusts giving effect to the common intention of the parties. A resulting trust is not imposed by law against the intentions of the trustee (as is a constructive trust) but gives effect to his presumed intention. Megarry J. in In re Vandervell's Trusts (No. 2) suggests that a resulting trust of type (B) does not depend on intention D but operates automatically".
(6) A constructive trust arises in connection with the acquisition by one party of a legal title to property whenever that party has so conducted himself that it would be inequitable to allow him to deny to another party a beneficial interest in the property acquired. This will be so where (i) there was a common intention that both parties should have a beneficial interest either at the date of acquisition or at a later date and (ii) the claimant has acted to his detriment in the belief that by so acting he was acquiring a beneficial interest. (Lewin on Trusts 20th ed (2020).
(7) The law on constructive trusts has been most authoritatively and neatly set out at [51] and [52] of the Supreme Court decision in Jones v Kernott [2012] 1 AC ("Jones"):
"[51] In summary, therefore, the following are the principles applicable in a case such as this, where a family home is bought in the joint names of a cohabiting couple who are both responsible for any mortgage, but without any express declaration of their beneficial interests. (1) The starting point is that equity follows the law and they are joint tenants both in law and in equity. (2) That presumption can be displaced by showing (a) that the parties had a different common intention at the time when they acquired the home, or (b) that they later formed the common intention that their respective shares would change. (3) Their common intention is to be deduced objectively from their conduct:
"the relevant intention of each party is the intention which was reasonably understood by the other party to be manifested by that party's words and conduct notwithstanding that he did not consciously formulate that intention in his own mind or even acted with some different intention which he did not communicate to the other party": Lord Diplock in Gissing v Gissing [1971] AC 886, 906.
Examples of the sort of evidence which might be relevant to drawing such inferences are given in Stack v Dowden [2007] 2 AC 432, para 69. (4) In those cases where it is clear either (a) that the parties did not intend joint tenancy at the outset, or (b) had changed their original intention, but it is not possible to ascertain by direct evidence or by inference what their actual intention was as to the shares in which they would own the property, the answer is that each is entitled to that share which the court considers fair having regard to the whole course of dealing between them in relation to the property: Chadwick LJ in Oxley v Hiscock [2005] Fam 211, para 69. In our judgment, the whole course of dealing in relation to the property should be given a broad meaning, enabling a similar range of factors to be taken into account as may be relevant to ascertaining the parties actual intentions. (5) Each case will turn on its own facts. Financial contributions are relevant but there are many other factors which may enable the court to decide what shares were either intended (as in case (3)) or fair (as in case (4)).
[52] This case is not concerned with a family home which is put into the name of one party only. The starting point is different. The first issue is whether it was intended that the other party have any beneficial interest in the property at all. If he does, the second issue is what that interest is. There is no presumption of joint beneficial ownership. But their common intention has once again to be deduced objectively from their conduct. If the evidence shows a common intention to share beneficial ownership but does not show what shares were intended, the court will have to proceed as at para 51(4) and (5) above."
(8) In Hudson, Lewison LJ considered at some length whether a constructive trust can arise simply as a matter of common intention without the need to show any detrimental reliance on that intention. He conducted a thorough review of the authorities and academic literature.
"[74] Grant v Edwards [1986] Ch 638 is a very important case for two reasons. First, the judgment clearly differentiated between what was needed in order to establish a beneficial interest of some kind and the process of quantifying that interest once established. Second it emphasised (if it needed emphasising) that where there is no writing that satisfies the statutory formalities, detrimental reliance is critical to the establishment of a constructive trust. At pp 646—647 Nourse LJ said:
"In a case such as the present, where there has been no written declaration or agreement, nor any direct provision by the plaintiff of part of the purchase price so as to give rise to a resulting trust in her favour, she must establish a common intention between her and the defendant, acted upon by her, that she should have a beneficial interest in the property. If she can do that, equity will not allow the defendant to deny that interest and will construct a trust to give effect to it…
[76] Accordingly, even where there has been an express agreement, it is still necessary to find detrimental reliance.
[77] He went on to say that where it is established that the claimant made contributions are preferable to the acquisition of the property "such expenditure will perform the twofold function of establishing the common intention and showing that the claimant has acted upon it…
[80] Sir Nicolas Browne-Wilkinson V-C said at p 654:
"If the legal estate in the joint home is vested in only one of the parties (the legal owner) the other party (the claimant), in order to establish a beneficial interest, has to establish a constructive trust by showing that it would be inequitable for the legal owner to claim sole beneficial ownership. This requires two matters to be demonstrated: (a) that there was a common intention that both should have a beneficial interest; (b) that the claimant has acted to his or her detriment on the basis of that common intention…
[81] … contributions made by the claimant may be relevant for four different purposes, viz; (1) in the absence of direct evidence of intention, as evidence from which the parties intentions can be inferred; (2) as corroboration of direct evidence of intention; (3) to show that the claimant has acted to his or her detriment in reliance on the common intention…
[107] I do not, therefore, detect in either Stack v Dowden or Jones v Kernott any intention on the part of the court to abrogate the long-standing principle that what makes an unenforceable agreement or promise enforceable in equity is detrimental reliance. The principle of detrimental reliance was not challenged in either case, and that is why it was unnecessary for the court to deal with it. As Professor Dixon put it (Non-problems, Future Problems and Fairy Dust [2022] Conv 119, 121):
"detrimental reliance was not in issue in either Stack nor Jones, not least because its existence was blindingly obvious on the facts. It was not pleaded as an issue, and was not argued as an issue. To infer therefore that the silence about detrimental reliance in those cases means that it is not required is imaginative. I may not specifically mention that you may not steal my laptop, but I am not authorising you to take it"."