The High Court was faced with a very complex case, lengthy facts and a bitter dispute which boiled down to a property transfer intended to save inheritance tax and whether such a transfer resulted in a constructive trust. 

Background:

It is a complex case over a £2.5m country mansion which both the father and the son claim belongs to them. The estate was initially bought by the father, ‘Mike’, in 2007, and was later expanded through the addition of three more residential units known as ‘Babs Park’. 

He has always placed considerable emphasis on ensuring his sons are well provided for and on an equal basis. Various examples were given. In 2015, Mike wanted to transfer the house to Tom and the rest of Babs Park to his other son. His intention was that Mike would continue to live, manage and maintain the property for the benefit of his sons. Due to some financial problems, however, Mike considered his options and found a buyer, although the sale did not go through. 

In the summer of 2019, Mike claims that he agreed to transfer the house to Tom on the condition that Tom would refinance, clear the existing charges, and pay the new lender from the income Mike would provide and that Mike would have control and use of the whole property, would be responsible for its upkeep and maintenance, and could develop it as he saw fit over his lifetime. Tom however denies this.

Mike informed his mortgage brokers. Additionally, there are various lines of evidence that Mike had told witnesses that he was gifting the house to Tom and the Babs Park to ‘Eddie’, subject to Mike’s life interest. 

Mike continued living at Babs Park but purchased items to keep the house, as well as paying for the maintenance and upkeep. He also remodelled various parts of the house in 2020 and 2022. In July 2022, Tom and Kim came to live at the house which was allegedly full of Mike’s belongings and recently redecorated. An altercation ensued in December 2022. According to Tom, in February 2023, Mike made a forced entry into the house and destroyed some of his possessions. Further trespass occurred between May and September of 2023. Mike stopped paying the mortgage and cost of running the house which Tom could not afford to pay himself and thus sought to sell the property. 

Mike bought a claim against Tom for a declaration that he holds the property on constructive trust for his father. The father also claims against Tom and Tom’s wife for an order for delivery up or payment of the value of what Mike says are valuable goods left by him in the house. Finally, he also brought a claim against all three defendants for damages for the conversion of various chattels. Tom counterclaimed the reimbursement of electricity, an injunction to restrain the father from entering the house or its lands, and damages for trespass.

Decision: 

The Court noted that, most likely in 2015, Mike transferred the house and Babs Park to his sons to avoid inheritance tax. The Judge rejected Tom’s assertion that he is very private regarding his finances based on his ‘outward manifestation of wealth’ and an interview given to the Daily Mail in 2024 in which he gave a breakdown of his financial affairs. Based on the evidence, the Court noted that Mike discussed the transfer with his sons and wider family on the condition that he retained control. As noted, “I find it unlikely, verging on the impossible that Mike would have handed over the house without such a reservation of his continuing rights”.

The Court concluded that Mike and Tom had the common intention that the transfer of the house would be subject to certain conditions and/or limitations. Tom was holding the house on a constructive trust for the claimant, or at least a Rochefoucauld constructive trust had arisen. Mike was not liable to pay Tom the sum of £24,000 in respect of the outstanding OVO energy bill due to the lack of a binding agreement and, moreover, Mike was entitled to carry out works by reason of the constructive trust. The chattels’ claim was however too vague and would take too much court time so the

Judge requested the counsel to propose a proportionate disposal of the claim. 

Implications:

This case highlights the importance of making your intention clear and that such an intention should be witnessed by various parties if not clearly set out in writing. Transferring a house for inheritance tax savings is not sufficient in itself. If it remains ‘business as usual’, it can be a sign that it was intended as a constructive trust. In this case, Mike relied upon the agreement that he would have a beneficial interest to his detriment, resulting in him carrying out and paying out-of-pocket for many costs of maintenance and refurbishment.