Beneficial ownership of funds in ISA account and property bought on right to buy

I would be grateful for some advice from others more expert in this area than myself.

Client has overpayments of JSA and HB on basis he had capital over £16K.

In 2005/06 he signed documentation at the request of his father to open an ISA account in his own name. His father’s statement to fraud investigators was that the purpose of the account was for him (the father) to save money as an inheritence for his son (i.e. our client). The pass book was held by the father and our client says he had no knowledge of what was in the account.

In 2009, our client was offered the right to buy his council house. Being on JSA at the time, and without capita lresources, he says that his father put up the money to meet the purchase price, taking advantage of our client’s substantial discount (nearly 40%). The intention was that the property would be signed over to the father after the 5 year period during which a repayment of the discount (on a sliding sclae) would have to be made in the event of a sale or transfer. The property would then form part of the father’s estate and our client, and his children, would ultimately benefit from inheritence (he is the only child, and his children the only grandchildren).

Part of the purchase price was from cashing in the ISA account (about one third of the cost) - the other two thirds came directly from his father’s own resources (although that too is not straightforward). There is no evidence that the father gifted his money to our client to purchase the property (so there should not be a presumption of advancement, I think)

Our client moved out of the property once purchased and moved to this area (many miles away!) where he has claimed HB and JSA for periods of time, interspersed with periods of employment. The house has been tenanted, with our client as the landlord; the rent going to an account in a third person’s name; and the father having access to that account (the client has no direct access)

Our client is the legal owner of the property. It seems to me, however, that he isn’t the sole beneficial owner.

The guidance to Decision Makers says that that our client would be holding the property on trust for himself and his father if his father used his own money to pay all the balance (i.e. after the discount), but is not a legal owner (DMG 29310)

What I am not clear about is whether the money in the ISA, which was solely put there by the father, was beneficially our client’s money, or not. It was clearly intended to be money that our client should have access to on the death of the father, but being in an ISA it presumably had tax breaks on the basis that the money was our client’s.

What is then the position as regards the money put to the purchase of the house by our client’s father? Is the property held on trust for them both as sugested at DMG29310?

There was no written agreement at any time - only verbal agreements.

Our client is due in magistrates court in a couple of weeks and a solicitor has advised him to plead guilty (there is no doubt about misrepresentation because he clearly ticked that he did not own property elsewhere). At the end of the day, he may well have to take the hit - his father’s evidence about how he raised the money for the purchase, for example, stretches credibility quite a long way.

However, we had already appealed against the benefit decisions on the basis that his beneficial interest in the property was not to be valued at above £16K, and I am just interested as to what his correct status is in relation to that property

Thanks

Brian

As a matter of law it is not possible to open an ISA as a trustee for some other person, precisely because of the tax breaks given to the account holder. To my recollection you have to sign something to say that you are solely beneficially entitled, in so many words. So the status of the ISA looks always to have been pretty dodgy, and in opening it the client may have been acting fraudulently and HMRC would be very interested and pursue somebody for the unpaid tax.

The traditional rule is that if A puts his property into the name of B, then B will hold it on a resulting trust for A (“the presumption of resulting trust”). This can very easily be rebutted by any evidence that a gift was intended (eg the words “happy birthday”). The contrary, very old-fashioned, presumption is that of advancement, meaning what a father does to set his child up in life (or buy him a house, as mentioned). This is a very weak presumption and very easily rebutted again by evidence. However A will not usually be allowed to rely on evidence to rebut the presumption which involves fraudulent purposes: one of the classic cases whose name I forget involved a father putting assets into a child’s name as a way of evading tax, then demanding the assets back from the (now adult) child who was no party to the fraud. The court would not let him use his fraudulent motives to rebut the presumption of advancement and “prove” that no gift was intended and that the child in fact held it on trust for him. However I think there are other cases which draw a distinction where the recipient was fully aware of the intentions at all time and was actively involved in any fraud.

If I am right (and my trusts law is rather rusty as it is now 12 years since I taught it) then he can’t deny that the money is really his father’s. That means that the father ought to have an equitable interest in the property, by way of resulting trust.

Needed to go back and reread original post.
I would say that probably all the cash put into the house represents the father’s interest, and all the value of the discount represents the son’s, and that he holds it on a resulting trust for himself and his father as tenants in common on the basis of the proportionate value of their contributions. But it probably does depend on exactly what they intended about the ISA.

Acknowledging Ariadne’s greater expertise in this area, the presumption of advancement was abolished by section 199 of the Equality Act 2010.

Thank you both for your replies, very helpful

Regards

Brian