Artic in the Lords today

[zathras]

There are some spousal transfers that are explicitely allowed for in legisilation to which this comment could be said to refer. IMHO you cannot extroplate this up to all the possibilites and then infer that the comment referred to them as well.

tim

Sorry Tim. It was actually Norman Lamont who was Chancellor at the time the independent taxation of spouses was brought in and he was very specific that it referred to S660 (see http://www.icaew.co.uk/index.cfm?AUB...676,MNXI_58676)

"Independent taxation is bound to mean that some couples will transfer assets between them with the result that their total tax bill be reduced. This is an inevitable and acceptable consequence of taxing husbands and wives separately….we have made it clear that we expect income splitting will occur."

"Provided that a gift of assets between husband and wife is free from conditions and is a complete and irrevocable transfer of the underlying capital as well as the income we see absolutely no case for imposing a tax penalty on the income from those assets."

It was therefore at the time independent taxation was brought in the intention of Parliament that income splitting occured and was expected.

[zathras]

Actually it does. It grants a right to income based on the dividend pool for that class of share unless waived. Clearly it is not wholly a right to income. If nothing else it give the right to certain capital on wind up for example. That leaves is it substantially a right to income. My belief (like yours) is not. I believe HMRC did argue at one point "substantially a right to income". But is this relevant.?

I disagree (and anyway the CoA agreed with me )

An ordinary share does not confer any rights to income. It is perfectly possible for an otherwise profitable company to not declare any dividend whatsoever and for those ordinary share holders to have no rights to demand it. Microsoft is a good case in point. For 10 years it declared no dividend despite the massive profits it made.

[ASB]

I disagree (and anyway the CoA agreed with me )

An ordinary share does not confer any rights to income. It is perfectly possible for an otherwise profitable company to not declare any dividend whatsoever and for those ordinary share holders to have no rights to demand it. Microsoft is a good case in point. For 10 years it declared no dividend despite the massive profits it made.

Sorry, it was actually a pedantic argument which I expected you to notice. What I wrote was:

"Actually it does. It grants a right to income based on the dividend pool for that class of share unless waived."

What it doesn't give is any guarantee that there will actually be any, only that if there is you get it.

In any event I feel the [can we settle on potential ] right to income is not relevant - because that only applies to absolute gift.

[ASB]

Sorry Tim. It was actually Norman Lamont who was Chancellor at the time the independent taxation of spouses was brought in and he was very specific that it referred to S660 (see http://www.icaew.co.uk/index.cfm?AUB...676,MNXI_58676)






It was therefore at the time independent taxation was brought in the intention of Parliament that income splitting occured and was expected.

Unfortunately the will of parliament is [probably] absolutlely irrelevant. The fact is that S660 was not updated to reflect this. The law lords are not empowered to look at the legislation and say "well we'll ignore this status because it's superceded by what the chancellor said".

It may be that under previous regimes HMRC chose not to bother trying and that now they do. Of course there may be some nugget in the finance act that does supercede the written S660A.

So, it comes back to where I started. If there is an element of gift if how Mrs Jones acquired the shares then it is caught. I don't beleive that to be the case. But I do beleive it's the only question. I know I won't persuade you.

[TinTin]

Argument

I'm not going to bore you with the specific legal arguments which we have all heard before. My point is the following: When a wife wishes to divorce her wealthy husband, the judges in 90% of the cases find for a 50/50 split (or 60/40 when there is a lot of dosh) citing that the spouse was an equal contributor to the husband's wealth, yet in this case they are treating her like some sort of bimbo secretary (I know she looks nothing like), ie that she had a minimum contribution and hence her renumeration (ie dividend) should be in that proportion. Am I missing something here?

[ASB]

Am I missing something here?

Yes. The law of the land. It's not fair, or rational. But it's the framework we all have to follow.

The argument is not about "right". It's about the law. Even though in this case it is an ass.

[tim123]

It was therefore at the time independent taxation was brought in the intention of Parliament that income splitting occured and was expected.

Sorry. It specifically DOESN'T say this.

It says that asset splitting is allowed and that income splitting "will occur". But it also said in the para before the ones that you quoted, that they expected S660 to apply in the case if income splitting.

tim

[tim123]

I'm not going to bore you with the specific legal arguments which we have all heard before. My point is the following: When a wife wishes to divorce her wealthy husband, the judges in 90% of the cases find for a 50/50 split (or 60/40 when there is a lot of dosh) citing that the spouse was an equal contributor to the husband's wealth, yet in this case they are treating her like some sort of bimbo secretary (I know she looks nothing like), ie that she had a minimum contribution and hence her renumeration (ie dividend) should be in that proportion. Am I missing something here?

You are missing the fact that there is no connection whatsoever between divorce law and tax law.

ISTM that when a couple divorce they should split their assets, anything else would be wholly unreasonable.

But it doesn't automatically follow that when you work out a family's tax bill they should be allowed to move income between the parties willy nilly to achieve a better resut.

tim

[rootsnall]

I've just been reading The Times coverage of the case and didn't realise they were using a 50/50 share split. Some of the legal argument ( for the HMRC side ) seems to be around the wife should receive a dividend split more in line with her contribution, and not that she shouldn't receive any dividend at all. In other words the more usual 3:1 or 4 :1 split may be OK. Looks like they took the p*** a bit to me if the report of the situation is correct !

[malvolio]

Nope, that's irrelevant. HMRC's case is basically that Geoff unloaded his income on to Diana to save tax. The legal arguments are all about which bits of S660 apply to that situation, not the proprtionality of the split itself.

Then again they are also arguing that Geoff took an "unrealistic" wage and built up "excessive reserves" in the company. So how much profit should a company make then?

They are also arguing that Arctic's initial set up, which was in line with expert accountancy advice and the guidance provided by the DTI, was deliberately engineered to guarantee significnat saving at some point in the future.

In a real world, with an honest government, this would never have come to court in the first place. That it has is down to Geoff's bloody-minded determination and the support of the PCG and others (a lesser man would have paid up or gone bankrupt) as much as it is down to HMRC's vindictiveness