Tax & Accounting News

HMRC lose appeal in family company dividends case

25/07/2007

HM Revenue & Customs have lost their House of Lords appeal in the long-running Jones v Garnett ("Arctic Systems Ltd") case.

Mrs Jones had acquired a 50% share of the company for £1 when it was formed, and received dividends from company funds generated by Mr Jones' earnings.

The House of Lords held that although the acquisition by Mrs Jones of 50% of the company for £1 was indeed a settlement, it was exempt under the general exemption for settlements between spouses. The dividends paid to Mrs Jones could not therefore be treated as Mr Jones' income.

For the full judgement, click here.

This finally settles the issue for other taxpayers with the same arrangements. The government has, however, announced that as a result of the case it will introduce new legislation to prevent 'income splitting'. We will provide further details when these become available.

Please contact us if you have any queries on how this will affect your tax affairs.

 

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