Reply to: Dividend Splitting - And subsequent benefit to me. Legal?

[Jessica@WhiteFieldTax]

The whole issue on married (or civil partnership) v not, is not one of legality in income splitting, but lack of protection.

S626 ITTOIA (successor provisions to S660) only exempts spouses or civil partners from settlements legilslation.

This doesn't stop unmarried splitting income, nor make it illegal, just you'll have to argue on first principles there is no settlement for it to be tax effective. Depends on how risk adverse tax payer is, but I would suggest income splitting between cohabitees is not uncommon, and dare I say it tolerated at present. As we know from the furore around Arctic systems, it can't be assumed thus will last.

[northernladuk]

Well in my case I have decided to leave my cohabiting g/f out of the ltd co. Although she is down on the mortgage as a common law spouse.........

I think this is the less risky option.

Well one is allowable and the other isn't.

[Cosmokramer]

Well in my case I have decided to leave my cohabiting g/f out of the ltd co. Although she is down on the mortgage as a common law spouse.........

I think this is the less risky option.

[psychocandy]

And of course, a lot of this income splitting stuff comes from the Arctic case where they were married thus setting a precedent if my understanding is correct. If you're not married, like in the Arctic case, then it leaves the way open for HMRC to come steaming in because its a different situation.

[northernladuk]

There is also the argument that a wife supports business owners with long days and many intangible elements so wouldn't be unreasonable they do support the company so can allow that but they have to draw the line somewhere. Once you start mentioning spouse, family and friends it just becomes so open to abuse it isn't worth considering. Many rules such of these can be very unfair to genuine people who, like myself for example, are not married by choice so cannot use them but relaxing the laws would then allow every man and his dog to use their retired parents who pay little or no tax. How do you allow my case but stop the retired parents situation? You just can't.

Probably not a point of law or something drives policy making but a difficult one to argue against.

[Clare@InTouch]

Errr but aren't they doing exactly that when they are transferring to the other half (not sure why other half here always happens to be a wife, not a husband)

Not arguing I understand its the law, but still the law is saying one can avoid tax in one case, but shouldn't avoid it in another.

The rule is not about avoiding tax though, it's the basic principle that transfers between spouses are exempt. The result of that rule is that a married person can do something that a single person cannot, but the rule isn't specifically there to allow them to do that.

I agree it's not fair, but that could be said for any rule that makes me personally worse off than someone else. But then there's bound to be other rules that work the other way. I don't have to wash anyone else's socks for example

[SandyD]

The whole point is to stop people transferring money to someone else with the sole purpose of using up that other persons tax band and therefore paying less tax. Anything you do that has "to avoid tax" as a main motivation generally has some type of anti-avoidance measure in place.

Errr but aren't they doing exactly that when they are transferring to the other half (not sure why other half here always happens to be a wife, not a husband)

Not arguing I understand its the law, but still the law is saying one can avoid tax in one case, but shouldn't avoid it in another.

[Clare@InTouch]

I don't understand how giving divs to your married shareholder is OK while giving it to another relative is not.

Because it's a common tax law premise that transfers between married couples are exempt. It's no different to Inheritance Tax whereby you can leave your estate to your wife and she pays no tax, but leave it to anyone else and they might.

The whole point is to stop people transferring money to someone else with the sole purpose of using up that other persons tax band and therefore paying less tax. Anything you do that has "to avoid tax" as a main motivation generally has some type of anti-avoidance measure in place.

[SandyD]

Exactly the same as a non-spouse, which would be the same for anyone else.

I don't understand how giving divs to your married shareholder is OK while giving it to another relative is not.

[northernladuk]

No, you have to be married, I spent a lot of time recently looking at this. What you do afterwards with the money isn't relevant

JoJo is right. You have to be married for this to work. A bit of basic research could have gotten you that answer.

I don't however agree with JoJo's comment about it not being relevant afterwards. Where the comment is probably correct and will stand up to scrutiny I can't help feeling you have to be a little more clever about the situation and just don't make it look like the money is being blatantly directed in to your pocket. Am sure it wouldn't be hard to make it look like she is paying her fair share rather than it end up as your benefit. Maybe I am being anal but that is how I would do it.

[Clare@InTouch]

What about making one of the children a shareholder (who is above legal age)?

Exactly the same as a non-spouse, which would be the same for anyone else.

[SandyD]

What about making one of the children a shareholder (who is above legal age)?

[Clare@InTouch]

As JoJo says above, there's an exemption if you're married but that doesn't extend to people who are merely living together. The income "shifted" to her would be seen as yours and taxed as if it had been yours.

The actual legislation is here if you're bored enough to read through it all: TSEM4000 - Settlements legislation: contents

[Cosmokramer]

Thanks for the response JoJo. Perhaps I should just forget it then and be 100% shareholder. Interesting though as my accountant doesn't have a problem with it and I do know of other contractors who are doing this.

[JoJoGabor]

No, you have to be married, I spent a lot of time recently looking at this. What you do afterwards with the money isn't relevant