© 2025 by Michael Firth KC, Gray's Inn Tax Chambers
Contact: michael.firth@taxbar.com
Express trusts
GENERAL
Relevance
- Questions not answered by statute (e.g. number of trusts) answered by general law of trusts
"[35] In Rysaffe Trustee Co (CI) v IRC [2002] EWHC 1114 (Ch), [2002] STC 872, Park J made the important point, with which I respectfully agree, that the provisions of the 1984 Act relating to settlements are, in the absence of special provision, for the most part left to be interpreted in accordance with the general understanding of trust practitioners: see his judgment at [18] to [21]. The particular issue in that case was whether the settlor had made five separate discretionary settlements by executing five separate trust instruments, or whether he should be treated as having made a single settlement..." (Barclays Wealth Trustees (Jersey) Limited v. HMRC [2017] EWCA Civ 1512)
"[13] Section 43(2) supplies the definition of "settlement" to be applied in answering each of these questions. It should be noted that s 43 does not specifically address a numerical question: what is the number of relevant settlements existing in a particular inheritance tax situation? In the absence of specific statutory provisions the answer to the numerical question is to be found in the general law of trusts." (CIR v. Rysaffe Trustee Company (CI) Limited [2003] EWCA Civ 356, Mummery, Schiemann, Dyson LJJ)
Number of settlements
- Multiple transfers to the same settlement constitute a single settlement for IHT purposes
"[52] First, I consider the better view to be that the 2001 Settlement was a single settlement for IHT purposes, constituted by a number of separate dispositions of property to be held on the trusts thereof. Those dispositions included the three transfers to the Trustee made by Mr Dreelan in 2001, his transfer of the 25,000 Qserv shares to the Trustee on 4 February 2003, and the transfer effected by the 2011 Appointment. Not only is this how a trust lawyer or practitioner would view the matter, but it fits comfortably with the definition of "settlement" in section 43(2) which applies for all purposes of the 1984 Act. In particular, the express reference to "disposition or dispositions of property" in the definition is in my view naturally read as intended to cover the common situation where a settlement is first made, often with a small or nominal sum of money, and further assets are then added by the settlor. This was rightly recognised by Park J in Rysaffe at [21], where he said:
"Let me consider the implications of the plural "dispositions". In my view the use of the plural is merely a recognition that in a case where there is a settlement (i.e. only one settlement) it is possible for there to have been more dispositions to the trustees than one. A typical case is where a settlor creates his settlement with one disposition, and later adds more property to it by one or more other dispositions."."(Barclays Wealth Trustees (Jersey) Limited v. HMRC [2017] EWCA Civ 1512)
Nature of a trust
- No distinct entity: simply various persons holding assets with a responsibility to deal with them in a particular way
"Can the appellant trustees be assessed to tax, now that EBSF has been wound up, and are the trustees protected from liability by cl 12 of the trust deed, that exonerated them from liability save where they have been guilty of some deliberate act of wrongdoing?
[54] Whilst I note that HMRC have conceded that at no point have the trustees been guilty of any sort of deliberate act of wrongdoing, the answers to the two questions that I have just posed are absolutely clear to me, and they are respectively Yes and No. Questions along the lines of whether tax chargeable on EBSF can be recovered from its trustees are entirely wrong because it is the trustees of any trust that are always liable for the trust tax, regardless (unless there is some statutory limitation) of the level of trust assets. It is also wrong of course to treat the trustees as being distinct from EBSF because when it was in existence, the situation was simply that various trustees held assets with a responsibility to deal with them in accordance with trust and charity law. There was no distinct entity in the shape of EBSF as some sort of independent taxpayer." (Simpson v. HMRC [2009] STC (SCD) 226), Judge Nowlan)
FOREIGN ASPECTS
Property situated in jurisdiction that does not recognise trusts
- Trust under English law can be declared over assets situated in jurisdiction that does not recognise trusts
"[34] It is clear therefore, that in the eyes of English law, a trust may be created, exist and be enforceable in respect of assets located in a jurisdiction, the law of which does not recognise trusts in any form." (Akers v. Samba Financial Group [2017] UKSC 6)
"[85] None of this, however, means that where a person assumes the liabilities of a trustee under an instrument governed by another law which recognises the concept, that instrument is void or cannot be enforced according to its terms. It remains effective to create personal rights against the trustee, who may be ordered to give effect to the trust, either by specifically performing it where that can be done, or making good his breach of duty financially. The law of Saudi Arabia will treat the trustee as the owner of the entire interest in the shares with all the rights that that entails, but equity will exercise its personal jurisdiction to compel him to deal with the shares in accordance with his trust. The same is true of equitable obligations in respect of property which are imposed by law, where the amenability of the defendant to the personal jurisdiction of the court has always been enough to justify the enforcement of his obligations." (Akers v. Samba Financial Group [2017] UKSC 6, Lord Sumption)
- But trust interests in trust property will be overridden by disposition of legal title under lex situs that overrides the protected trust rights
"[51] It is unnecessary on this appeal to examine these slightly differing analyses further. What is clear, on any analysis, is that, where a trust exists, the legal and beneficial interests are distinct, and what affects the former does not necessarily affect the latter. Where an asset is held on trust, the legal title remains capable of transfer to a third party, although this undoubted disposition may be in breach of trust. But the trust rights, including the right to have the legal title held and applied in accordance with the terms of the trust, remain. They are not disposed of. They continue to be capable of enforcement unless and until the disposition of the legal title has the effect under the lex situs of the trust asset of overriding the protected trust rights. If the trust rights are overridden, it is not because they have been disposed of by virtue of the transfer of the legal title. It is because they were protected rights that were always limited and in certain circumstances capable of being overridden by virtue of a rule of law governing equitable rights, protecting in particular (under common law) bona fide third party purchasers for value (equity's "darling" in the terms of para 4.151 in Swadling in Burrows' English Private Law, cited in para 45 above)." (Akers v. Samba Financial Group [2017] UKSC 6)
CREATION OF EXPRESS TRUST
Three certainties
- Summary
"[48] It is well established that an express trust will only arise where the "three certainties" essential for the creation of a trust are satisfied. First, there must be certainty of intention to create a trust. Secondly, there must be certainty as to the subject-matter of the trust. Thirdly, there must be certainty as to the beneficiaries of the trust." (Gill v. Thind [2023] EWCA Civ 1276, Arnold, Jackson, Asplin LJJ)
(1) CERTAINTY OF INTENTION TO CREATE TRUST
Nature of intention to be proven
- An intention to dispose of property so that somebody else acquired a beneficial interest in it
"[50] Scarman LJ, with whom Bridge and Cairns LJJ agreed, noted at 530C-D that "[n]o particular form of expression is necessary for the creation of a trust, if on the whole it can be gathered that a trust was intended". At 531G he accepted the following statement of principle propounded by counsel for the defendant:
"… there must be a clear declaration of trust and that means there must be clear evidence from what is said or done of an intention to create a trust — or, as [counsel] put it, 'an intention to dispose of a property or a fund so that somebody else to the exclusion of the disponent acquires the beneficial interest in it.'"" (Gill v. Thind [2023] EWCA Civ 1276, Arnold, Jackson, Asplin LJJ)
- Declaration of trust found instead of incomplete gift where statement that person was "holding" assets for another
"[13] In my judgment, this line of argument starts from the wrong point. In interpreting a document, the court should not have regard to the subjective intention of its maker but to the intentions of the maker as manifested by the words he has used in the context of all the relevant facts. Here there is no doubt that Mr Dinesh Shah manifested an intention that the letter should take effect forthwith: see the words "as from today". To give effect in law to those words, there has to be a disposition only of a beneficial interest, since, for the reasons given above, legal title did not pass until registration. The parties clearly intended registration to take place in due course because otherwise Mr Dinesh Shah would not have simultaneously executed and delivered a stock transfer form. Judged objectively, did the words used convey an intention to give a beneficial interest there and then or an intention to hold that interest for Mr Mahendra Shah until registration? Mr Dinesh Shah used the words "I am …holding", not, for example, the words "I am assigning" or "I am giving" and the concept that he holds the shares for Mr Mahendra Shah until he loses that status on registration can only be given effect in law by the imposition of a trust. Accordingly Mr Dinesh Shah must be taken in law to have intended a trust and not a gift. Added to that, as Norris J points out, he calls the document "a declaration" in his letter, which is more consistent with its being a declaration of trust than a gift." (Shah v. Shah [2010] EWCA Civ 1408, Arden LJ)
Means of proving intention
- From what is said or done
"There is no suggestion of a gift by transfer in the present case. The facts of the two cases do not, therefore, very much help the submission of Mr. Blythe but he was able to extract from them this principle: that there must be a clear declaration of trust and that means there must be clear evidence from what is said or done of an intention to create a trust -- or, as Mr. Blythe put it, "an intention to dispose of a property or a fund so that somebody else to the exclusion of the disponent acquires the beneficial interest in it." He submitted that there was no such evidence.
When one looks at the detailed evidence to see whether it goes as far as that -- and I think that the evidence does have to go as far as that -- one finds that from the time that the deceased received his damages right up to his death he was saying, on occasions, that the money was as much the plaintiff's as his. When they discussed the damages, how to invest them or what to do with them and when they discussed the bank account, he would say to her: "The money is as much yours as mine."" (Paul v. Constance [1976] EWCA Civ 2)
- Viewed in context and history of relationship
"[52] It can be seen from this reasoning that Scarman LJ regarded the issue as one of fact. It can also be seen that, in concluding that the judge was correct to decide as he did, Scarman LJ took into account not only the words used by Mr Constance, but also the character of Mr Constance, his relationship with the plaintiff during the relevant period and his conduct when opening the bank account and with respect to the bingo winnings." (Gill v. Thind [2023] EWCA Civ 1276, Arnold, Jackson, Asplin LJJ)
"The plaintiff gave evidence, which the judge accepted, that on frequent occasions the deceased told her that the money in his deposit account at Lloyds Bank was as much her money as his. In the last analysis, accordingly, the whole question in this case, as it seems to me, is whether the judge was right, construing those words according to their proper meaning and in the context in which the words were spoken as disclosed by the evidence, to conclude that, by using those words, the deceased had done something which was equivalent to declaring himself a trustee of the moneys in the account for himself and the plaintiff in equal shares." (Paul v. Constance [1976] EWCA Civ 2)
- Documentary declaration: whether document demonstrates intention is question of law
"[55] What must be proved is an intention to create a trust. If A asserts that a declaration of trust has been made by B in a document, the claim might be analysed in two stages. First, A would have to prove, on the balance of probabilities, that B had signed the document. Secondly, A would have to persuade the court that the document, properly interpreted, constituted a declaration of trust. In principle, a similar two-stage analysis applies if A asserts an oral declaration of trust by B. First, A has to prove, on the balance of probabilities, what B said. Secondly, A has to persuade the court that this demonstrated an intention to declare a trust.
[56] The principal difference between these scenarios is that, in the case of a documentary declaration, the first stage of the analysis involves a question of fact whereas the second stage is a question of law, and evidence as to B's subjective intentions and subsequent conduct is not admissible at that stage;..." (Gill v. Thind [2023] EWCA Civ 1276, Arnold, Jackson, Asplin LJJ)
- Oral declaration: what was said + intended questions of subjective fact, subjective intentions + subsequent conduct admissible
"[55] What must be proved is an intention to create a trust. If A asserts that a declaration of trust has been made by B in a document, the claim might be analysed in two stages. First, A would have to prove, on the balance of probabilities, that B had signed the document. Secondly, A would have to persuade the court that the document, properly interpreted, constituted a declaration of trust. In principle, a similar two-stage analysis applies if A asserts an oral declaration of trust by B. First, A has to prove, on the balance of probabilities, what B said. Secondly, A has to persuade the court that this demonstrated an intention to declare a trust.
[56] The principal difference between these scenarios is that, in the case of a documentary declaration, the first stage of the analysis involves a question of fact whereas the second stage is a question of law, and evidence as to B's subjective intentions and subsequent conduct is not admissible at that stage; whereas, in the case of an oral declaration, the questions of what was said and what was intended by it are both questions of fact, and evidence as to B's subjective intentions and subsequent conduct are admissible: compare the position concerning oral agreements (and agreements made partly in writing, partly orally and partly by conduct) as explained by Lord Hoffmann in Carmichael v National Power plc [1999] 1 WLR 2042 at 2049A-D and 2050H–2051C." (Gill v. Thind [2023] EWCA Civ 1276, Arnold, Jackson, Asplin LJJ)
- May not be possible make finding of exact words used for oral declaration
"[57] A secondary difference is that, in the case of an oral declaration, it may well not be possible for the court to make a finding as to the exact words used by B, and so the court may only be able to make a finding as to their gist. In those circumstances, there would be nothing wrong in the court running the two questions together and asking whether, on the balance of probabilities, B said words that were such as to demonstrate an intention to declare a trust." (Gill v. Thind [2023] EWCA Civ 1276, Arnold, Jackson, Asplin LJJ)
Timing of trust
- Statements on multiple occasions sufficient, but not easy to pin-point a specific declaration
"It might, however, be thought that this was a borderline case, since it is not easy to pin-point a specific moment of declaration, and one must exclude from one's mind any case built upon the existence of an implied or constructive trust, for this case was put forward at the trial and is now argued by the plaintiff as one of express declaration of trust. It was so pleaded and it is only as such that it may be considered in this court. The question, therefore, is whether, in all the circumstances, the use of those words on numerous occasions as between the deceased and the plaintiff constituted an express declaration of trust. The judge found that they did. For myself, I think that he was right so to find. I therefore would dismiss the appeal." (Paul v. Constance [1976] EWCA Civ 2)
Examples
- "The money is as much yours as mine" on multiple occasions by unsophisticated person gave rise to trust
"In this court the issue becomes: was there sufficient evidence to justify the judge in reaching that conclusion of fact? In submitting that there was, Mr. Wilson draws attention first and foremost to the words used. When one bears in mind the unsophisticated character of the deceased and his relationship with the plaintiff during the last few years or his life, Mr. Wilson submits that the words that he did use on more than one occasion, "This money is as much yours as mine," convey clearly a present declaration that the existing fund was as much the plaintiff's as his own. The judge accepted that conclusion. I think that he was well justified in doing so and, indeed, I think that he was right to do so. There are, as Mr. Wilson reminded us, other features in the history of the relationship between the plaintiff and the deceased which support the interpretation of those words as an express declaration of trust. I have already described the interview with the bank manager when the account was opened. I have mentioned also the putting of the "bingo" winnings into the account and the one withdrawal for the benefit of both of them." (Paul v. Constance [1976] EWCA Civ 2)
(2) CERTAINTY OF SUBJECT-MATTER OF TRUST
(3) CERTAINTY OF BENEFICIARIES