Income Shifting

Although there is nothing major in the way of changes in legislation.  HMRC are always looking at ways to challenge income shifting and putting into place anti-avoidance rules preventing tax advantages of diverting income amongst family members.  In particular, through Alphabet shares. 

If you would like any advice on this, please contact us on 01908 227055

In a December 2010 interview, the head of the newly-formed Office of Tax Simplification mentioned that income shifting may be addressed again in the future, however no new initiatives have surfaced in the six years since the 2007 House of Lords decision.

December 2008

Further to the abortive legislation planned for Finance Bill (FB) 2008, the Government have consulted on income shifting but will not bring forward legislation for FB 2009, given the current economic challenges. They will keep the issue under review.

April 2008

Following HMRC’s defeat in the Arctic Systems case, the Government’s intention to bring in amending legislation to reverse the decision has been confirmed. The case involved a company owned by a husband and wife where each owned one share, enabling profits to be distributed as dividends to both of them despite the fact that the husband was the income earner for the company. Due to recent changes in tax and national insurance rates, significant tax savings can be made using ‘husband and wife’ companies or partnerships.

Following confirmation of the effectiveness of such structures by the House of Lords in the Arctic Systems case, the Chancellor has announced that the legislation will be amended to remove the tax advantage from such income shifting arrangements.

The new rules, which have yet to be finalised, will tax affect from 2009/10 and will apply when income is distributed as dividends from a company, or arises as partnership profits.

Please call us on 01908 227055 if you would like to discuss this

Last updated: 25 September 2019