Income Shifting

"The Government firmly believes it is unfair to allow a minority of individuals to benefit financially from shifting part of their income to someone else who is subject to a lower rate of tax - known as income shifting. The Government has consulted on this issue, but given the current economic challenges is deferring action on income shifting and will not bring forward legislation at Finance Bill 2009. The Government will instead keep this issue under review."

PBR08/03 24 November 2008 Ensuring fairness for all taxpayers

Background :--

Following HMRC’s defeat in the Arctic Systems case, the government has published a consultative document which includes draft legislation to prevent a tax advantage being gained through what has become known as ‘income shifting’.

The proposed legislation intended to apply to an individual who shifts company dividends and partnership profits to another individual. It will not affect dividends from a quoted company or investment income from savings accounts or generally from rental.

It is broadly designed to address the Arctic Systems sort of situation, where one spouse or civil partner generates most of the business profits but the other gets a proportion of the profit and, overall, the couple save tax into the bargain. However, the proposed rules are very widely drafted and may catch many owner-managed businesses involving husbands, wives and other family members, as well as businesses run by people who are living together but are not married.

HMRC’s 2007 consultation document can be accessed at

http://www.hm-treasury.gov.uk/d/consult_income_shifting.pdf

Please note that this is not legislation and is subject to a consultation process. If you have any questions or concerns, please do not hesitate to contact us

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