Section 660 - Round One to the Revenue
Originally sent: October 8, 2004Many of you will be aware by now that Inland Revenue has won an important case before the Special Commissioners ? Arctic Systems. Or SPC00432, Jones v Garnett to use its official title.
This is a landmark case for a number of reasons. Firstly because it is the only one I recall in which the two Commissioners had diametrically opposed opinions and the Chairperson had to use her casting vote for a decision even to be reached. But more importantly because it has now cast in doubt the legitimacy of many apparently innocent spousal share arrangements.
The decision was announced at the end of September, but the full findings of the Commissioners were only published today (Friday). You have probably therefore heard about the case but not yet read any in depth analysis. I have read the full decision very carefully and have to say there are quite disturbing implications for those of us who own shares in our companies together with our spouses, or who advise clients in that situation.
What is quite clear is that if the decision stands, we will have to exercise very great care in the future about how we structure the ownership of small family companies. One key factor would seem to be that we should ensure both spouses are Directors, not just shareholders, as this would undercut much of the argument made by Dr Nuala Brice, who found in favour of the Revenue. It may also be the case that adopting a ?below market rate? salary and high dividend policy will now be quite a dangerous strategy in a small family company. Good news, perhaps, to those of us still trying to sell pensions under pre A-Day rules. Although the question of what constitutes a ?market rate? salary is likely to become a legal minefield.
Of course, Mr & Mrs Jones have the right of appeal, and I would be very surprised if they did not exercise this right. Dr Nuala Brice was overturned in both the High Court and the House of Lords in Jerome v Kelly, a Capital Gains Tax case which also went before the Special Commissioners, and she did not have a diametrically dissenting opinion in that case.
I will certainly be looking at the Arctic Systems case and Section 660, and how it effects us as Financial Advisers in my Technical Day on Corporate Taxation on 10th November, as well, of course, as covering many other relevant corporate tax issues.
Adviser Breakthrough Training Solutions Ltd. takes no responsibility for loss occasioned by any person acting or refraining from action, or in consequence of any other person acting or refraining from action, as a result of the material in this article.
Adviser Breakthrough Free IFA News Service
About
Adviser Breakthrough Training Solutions provides the IFA community with a FREE and easy way to keep ahead of the game - so why not sign up today ?
Subscription to this newsletter is FREE. To sign up simply enter your name and email address in the form below.
