Income Shifting

[JoJoGabor]

Im getting come conflicting advice around income shifting under Section 660. Nixon Williams say that I have to be married to my partner (We have been living together for nine years) however various oter people tell me that I dont have to be married. On this site under CUK it suggests we dont have to be married, as long as I retain the right to take back the shares or we both get dividends paid into a joint account...

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QUOTE: Do I have to be married to a person of the opposite sex who I run my business with in order to be caught by s660 (now s624)? In other words, is it only ‘husband and wife’ firms that need to be careful under the settlements legislation, or do I still need to be wary even if I run a jointly owned company with a business partner, or a civil partner.

The settlements legislation is broad enough to cover arrangements involving cohabitees. In these circumstances the settlements legislation would normally apply where the settlor has retained some “reversionary interest” over the shares that have been issued or given to the cohabitee (for instance a right to acquire the shares back or the right to enjoy proceeds from, or the income from, the shares given away).

For example, if the non-working cohabite receives a dividend that is paid into a joint bank account, or is used to pay the joint mortgage, then the working cohabite has retained an interest. In this situation, it would be very difficult to exclude any benefit going back to the working cohabitee.
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What do others think?

[northernladuk]

Did you check the comments at the bottom, i.e.

Avoid having differing classes of shares. Preferably, all shares should have the same income, capital and voting rights.
Where possible both parties should contribute to the company’s business and there should be evidence of this.
Both parties should subscribe for shares from their own resources and introduce real value.
Dividend waivers should be avoided.
Each arrangement needs to be looked at on its own merits and taxpayers who are married or are civil partners or are cohabiting who are looking to establish a joint business should seek expert advice.

Do you meet that criteria for a start? The bottom comment kinda answers the question if you have to be married. The fact they are making that comment would lead me to think that it isn't as black and white as your matrial situation. It appears there are other aspects you need to be wary of that could make a married couple fail but a cohabitee acceptable. I think the last comment is the most interesting 'establish a joint business'. I personally think anyone who has given shares to their wife purely to use her tax breaks is on borrowed time....

[Craig@Clarity]

Maybe this will help ITTOIA 2005 section 626 of Chapter 5 of Part 5 (http://www.legislation.gov.uk/ukpga/2005/5/section/626)

[Craig at Nixon Williams]

Our guidance on this follows the precedent set by the Arctic Systems case in 2007 as this is the leading case in this area. In this case the shareholders were married and this was a factor in the judgement.

Any deviations in your circumstances to those in the Arctic Systems case would not be covered by the precedent set by that case.

Hope this clarifies, let me know if you need any additional information on this though!
Craig

[JoJoGabor]

Maybe this will help ITTOIA 2005 section 626 of Chapter 5 of Part 5 (http://www.legislation.gov.uk/ukpga/2005/5/section/626)

Hi Crag@Intouch - so in Laymans terms, what does that mean? I may be very tired but I cant make head nor tale of that. Even looking up the definition of a settlor hurt my head

[Craig@Clarity]

Hi Crag@Intouch - so in Laymans terms, what does that mean? I may be very tired but I cant make head nor tale of that. Even looking up the definition of a settlor hurt my head

I was trying to point out "Exception for outright gifts between spouses [or civil partners]"

It's the exempt to the legislation where a settlement doesn't occur i.e. ole s660 isn't applied.

[malvolio]

Have a read of the PCG's Guide to the subject.

[Wanderer]

So, to summarise:

Issuing a share to a common law partner (or any other connected person) would be caught under the settlements legislation (eg, you wouldn't enter into the same arrangement at arms length with a person you have no relationship with) and the exemption under s626 only applies to spouses or civil partners.


Sorry JoJoGabor, you can't do it. Not the answer you were looking for - sorry.

[JoJoGabor]

So, to summarise:

Issuing a share to a common law partner (or any other connected person) would be caught under the settlements legislation (eg, you wouldn't enter into the same arrangement at arms length with a person you have no relationship with) and the exemption under s626 only applies to spouses or civil partners.


Sorry JoJoGabor, you can't do it. Not the answer you were looking for - sorry.

Thanks Wanderer i always like your plain english translations. We're planning to get mrried anyway (not tax related), but havin looked into this a bit more it seems that my wife would also have to take an active part in running the business at a minimum, for example doing all the administration work. Is that other's understanding?

[eek]

Re: Income Shifting

To collect dividends your wife doesn't need to do anything. To receive a salary she probably should do appropriate work for the amount paid but I did see any accountant argue that she didn't need to do anything on here recently