S660 implications shortly after a share transfer has taken place

[Craig@Clarity]

Don't read HMRC's guidance in cases like these. Go straight to the law:

http://www.legislation.gov.uk/ukpga/...rt/5/chapter/5

In the Arctic Systems case:

1. There was an arrangement (purely by fact that Mr Jones intentionally gave shares to his wife, took a lower salary and split dividends)
2. Retained interest (as found in Crossland v Hawkins and it was mentioned that the settlement is paid for the benefit of their kid)
3. It was bounteous (something for nothing).

If all three stages above pass for settlement, that's when you look at s626 to see whether there was an inter-spouse transfer and wholly a right to income.

If anyone is interested, there's another settlement case for a bit of light reading (Donovan & Maclaren)

[Craig at Nixon Williams]

Yes. No. Maybe. There are differing opinions on this, the only thing that can be said with any certainty is that this sort of thing hasn't been challenged by HMRC to date or tested in court. But that's not to say it wouldn't in the future.

However, as accountants/tax advisors we can't just say do it etc. we have to explain the possible risks involved and then it's up to the clients as to where their attitude to risk stands. I believe this is why NW have the part in their about the possible challenge by HMRC.

These two comments hit the nail on the head as to why we have that section included in the guide. I'm sure that if you were to ask another accountant you will get a different opinion, but as Martin@Contratax has suggested - we prefer to outline the possible risks to a client so that they can make an informed decision.

To the OP - if you would like to PM me with your contact details, I will be more than happy to speak to you about your specific circumstances in more detail.

Craig

[Craig@Clarity]

Ok, say if you gifted a dividend to your spouse of say, 10k, and you receive 10k, and this 20k was put towards the purchase of a car which would be driven by the giver, would this be deemed as providing benefit to the giver? What about in the case of a property purchase etc?

This is indirect retained interest and covered under s625

[TheCyclingProgrammer]

Don't read HMRC's guidance in cases like these. Go straight to the law:

The sections of HMRC guidance I quoted are almost verbatim quotes from the actual legislation. I only referenced those as it was easier. s626 clearly states that an gift is only considered an outright gift if its not applicable for the benefit of the giver and only outright gifts are covered by the exemption.

HMRC technical guidance should not be dismissed as its probably a fair indicator of what they would challenge and what they would not.

[TheCyclingProgrammer]

This is indirect retained interest and covered under s625

So you're effectively saying the recipient of gifted shares in a spousal situation cannot spend their dividend income on anything that could be construed as benefitting the settlor in any way shape or form then? No household bills, no shared assets, no joint accounts, nothing spent on the kids etc.?

In that case, what exactly is the money supposed to be spent on?

[Craig@Clarity]

The sections of HMRC guidance I quoted are almost verbatim quotes from the actual legislation.

I agree. However, with HMRC even with the slightest change in a sentence, could be interpreted differently. I only know this as the tribunal will throw out any reliance on "HMRC guidance". They always refer to the law. I also know that their guidance can be completely misleading too (B.E.T.)

[Craig@Clarity]

So you're effectively saying the recipient of gifted shares in a spousal situation cannot spend their dividend income on anything that could be construed as benefitting the settlor in any way shape or form then? No household bills, no shared assets, no joint accounts, nothing spent on the kids etc.?

In that case, what exactly is the money supposed to be spent on?

No. s624 and s625 determines if there is a retained interest. Which there could well be, but then it's exempt due to s626. So the recipient can spend that would benefit the settlor meaning the settlor retains an interest even if it's indirect e.g. paying household bills. However, providing s626 applies (conditions A AND B), the couple are exempt from the settlements legislation.

[ContrataxLtd]

No. s624 and s625 determines if there is a retained interest. Which there could well be, but then it's exempt due to s626. So the recipient can spend that would benefit the settlor meaning the settlor retains an interest even if it's indirect e.g. paying household bills. However, providing s626 applies (conditions A AND B), the couple are exempt from the settlements legislation.

Or in short, just because there is a retained interest doesn't mean that the settlements legislation catches the income so that it is taxed on the original settlor because the spousal exemption can override this.

[TheCyclingProgrammer]

No. s624 and s625 determines if there is a retained interest. Which there could well be, but then it's exempt due to s626. So the recipient can spend that would benefit the settlor meaning the settlor retains an interest even if it's indirect e.g. paying household bills. However, providing s626 applies (conditions A AND B), the couple are exempt from the settlements legislation.

OK. I'm not talking directly about retained interest here, as per s624/5. I'm talking about the definition of an outright gift as per s626.

As I said before, the spouse exemption only applies to outright gifts. As defined by s626, a gift is only considered an outright gift if the shares or dividends are not applicable for the benefit of the giver. Ergo, if the giver (settlor) benefits (depending on how you define benefit), then it's not an outright gift and the spouse exemption doesn't apply.

I feel like we're going round in circles a bit here. When you said that "retained interest" is not relevant to the spousal exemption, strictly speaking you are correct; the point I trying to make is that the definition of retained interest in s625 is very very similar to the definition of outright gift in s626, meaning if it could be construed that there is retained interest under s625 because the settlor themselves have benefitted then they could equally be said to have benefitted under the exclusions of the meaning of an outright gift in s626.

We could probably debate this back and forth forever but I think its somewhat of a moot point. HMRC have never challenged an arrangement using settlements legislation in this way before and I don't expect them to either as it would be fairly easy for them to do and I think they would have done so by now.