The New Rules Stop Press:

The government intended that legislation would take effect from 6 April 2008 to address ‘income shifting’. It was announced in the 2008 Budget Report that the government has reconsidered its position following a period of consultation with business and now believes that a further period of consultation will ensure that legislation in this area provides clarity and certainty for businesses and their advisers.

The government now intends to introduce legislation through Finance Bill 2009 and will not enact legislation effective from 6 April 2008.

The proposed legislation will potentially apply from 6 April 2008 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 consultation document can be accessed at www.hm-treasury.gov.uk/consultations_and_legislation/income_shifting/consult_income_shifting.cfm

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