The Chancellor announced a further deferral of the proposed ‘income shifting’ legislation in the Budget. However, the ‘settlements’ anti-avoidance provisions are still very much in force and the Revenue is applying them.
In a recent case (Buck v Revenue and Customs Commissioners  SpC 716) Mr Buck owned 9,999 shares and Mrs Buck 1 share in a company. Mr Buck waived the dividends on his shares, which enabled enhanced dividends to be paid on his wife’s share. HMRC argued and won that the dividend waivers constituted a ‘settlement’, and assessed Mr Buck on the enhanced dividends.
The main problem was that there were insufficient reserves to cover the dividend if the waiver had not been made.
In another case (Mr and Mrs Bird v Revenue and Customs Commissioners ), Mr and Mrs Bird were the initial shareholders of a company, owning one share each. The company issued a further 98 shares at par, 19 shares each to Mr and Mrs Bird, and 20 shares to each of their three daughters. Dividends were paid to all shareholders. HMRC argued, and again won, that the dividends paid to the daughters (until they reached age 18) constituted income arising under a ‘settlement’, which should be treated as Mr and Mrs Bird’s income.
Any tax planning of this nature will need to be considered carefully if it is to be effective.
Comment on this blog in the space provided below, or visit my profile for details of how to contact me.
Cathy Corns is a Tax partner at Mercer & Hole.
Date: 8th June, 2009
Articles from this Author
20th July, 2017
Uncertain times for winding up transactions
3rd July, 2017
9th June, 2017
27th April, 2017
Government places Making Tax Digital legislation on hold
Contact Business Service Partners
Choose from the drop down menu below to select a Partner to contact.
For the latest Mercer & Hole news, visit our LinkedIn page mercer-&-hole