It's been at the back of my mind for a while, ...

It's been at the back of my mind for a while, ...

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If a company is owned and profits distributed in exactly the way that the Inland Revenue claims the settlements legislation should catch, except that the "husband" and "wife" are not married, is anybody of the opinion that that legislation CAN apply?

If the "wife" contributes nothing (or very little) to the business, shares are transferred to her by the "husband", dividends paid direct to the "wife" who then simply transfers the cash into the "husband's" bank account, surely the settlor has an interest in derived property which has become applicable for the benefit of him?

If the situation is that the "wife" uses the dividend for housekeeping, the derived property has again been applied to the benefit of the settlor has it not?

Even if the "wife" uses the cash to buy her own personal effects, whilst the situation may be less clear cut, has not the settlor benefitted here also (his own money stays in his pocket)?

I'm looking at s.660A(2) when asking this.

I know very little about trusts, but don't some trust deeds include a clause effectively introducing a "long-stop beneficiary" specifically for the purpose of preventing the settlor from benefitting in any way from the trust property?

If such clauses are deemed necessary for trusts, presumably the absence of such a clause would make the trust settlor-interested as it would be possible (however remote) for the settlor to benefit?

I appreciate I think that the settlements legislation may not in itself be aimed at trusts, but is it not worded in such a way that many types of arrangements are caught, not just formal trusts? If so, why does it not apply in the above examples? Or might it?
Tony P

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By NeilW
15th Feb 2005 09:26

Arguable
It's arguable, and the Revenue may try and apply it in that way.

However it does beg the question what the intention of parliament was, given the drafting of 660A(2), and in particular the qualification in 660A(3).

Also bear in mind that the settlements envisaged by 660A do not necessarily have to include the shares in the company. We have yet to see the 'settlement of effort' argument raised in court.

NeilW

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