Originally posted by Lance
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As I'm sure you know, the decision was that the spouse exemption applied specifically because the shares in question were more than a gift of income. They also came bundled with additional rights including the right to vote and the right to receive a capital distribution. Had the shares been of a class that only came with the right to receive dividends, the exemption would not have applied.
Therefore, because it is possible to have more than one class of ordinary share that otherwise rank pari-passu in terms of the rights attached to those shares, it's hard to imagine under current legislation how HMRC could challenge that in the face of the case law established in Arctic, which IMO is still relevant.
It's not risk-free of course. There's always the risk you end up as the next big test case, if (and it's a big if), HMRC decide they want to start pursuing settlements cases again. AFAIK they have been few and far between since Arctic.
I've read that one possible way HMRC could challenge an alphabet share arrangement is not arguing that the original settlement of shares is caught (because they would probably lose as per the Arctic case) but that there is in fact a second settlement created by voting for a dividend on one class of shares at the expense of another class of shares, particularly where it wouldn't be possible to pay the same level of dividends on both due to insufficient reserves, as that would be a bounteous arrangement in its own right. IMO this seems like grasping at straws and would likely only come into play if you start offloading disproportionate amounts of dividends onto the lower tax paying shareholder. I doubt this argument would ever come into play if all you're doing is paying small levels of dividends to a basic rate paying spouse to take advantage of the dividend allowance. At the very least, the amount of tax HMRC could recover would probably not be worth the cost of the investigation!
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