Declaration of trust of land – validly made? – retrospective confirmation?
Approximately 20 years ago our client handwrote a note addressed to her daughter which was signed and dated saying “I [name redacted] as from today [date redacted] give the building at [place redacted]. Please come home and make the building at [place redacted] your home”. Our client’s daughter and son-in-law then spent significant sums of money transforming the building into a home and have now lived there for many years. However, no formal declaration of trust has been put in place and legal title to the building has never been transferred.
Solicitors acting for our client’s daughter some years ago looked at this and indicated that there was an argument that the property was, as a result of the facts above, held on a constructive trust for the daughter but was not sure whether this was sufficient for capital gains tax purposes.
Accountants have now advised our client that a transfer of the property now would result in significant capital gains. Also, while our client could hold the property until death and we do not think it will cause an IHT issue, this is not satisfactory for the daughter who would be relying on a Will not being changed and on the IHT rules not being amended.
We have therefore been requested to prepare a document which would effectively be a retrospective confirmation/declaration of trust or at least a document purporting to confirm that a trust was declared. We have been referred to the Law of Property Act s53 and to the fact that a trust of an interest in land needs to be evidenced in writing and – we are advised – that the writing does not have to have been put in place at the time of the declaration. The idea of this Deed would be to confirm the existence of the trust as from 20 years ago. Thus the beneficial interest would already belong to our client’s daughter and there would be no CGT implications.
However, this raises a number of queries: (1) was there actually a valid trust created at all or was it simply a failed transfer which the courts would not construe as a declaration of trust; (2) would a deed of confirmation retrospectively put in place a trust or simply have some evidential value as to the intention at the time; (3) should the matter be raised with HMRC for CGT purposes if a ‘Deed of Confirmation’ is signed; (4) if it is not raised for CGT purposes now, then in the event of our client’s death, should the matter be raised with HMRC or can the executors simply not mention the beneficial interest in the property on the basis that they take the view it was put into trust 20 years ago; (5) even if there was no actual declaration of trust, would a constructive trust/proprietary estoppel prevent either CGT or IHT falling on the value of the beneficial interest if our client transferred it now or her executors stated that she did not own it at the time of her death.
If there is an obvious course of action which can neutralise this potentially thorny issues, suggestions would be extremely welcome.
Robert Hudson
Atkinson Ritson