Arctic Systems and all that! A discussion with Nichola Ross Martin

...this business about husbands making gifts to wives.

My wife is, and always has been, absolutely clear that what is mine is hers and what is hers is hers.

Doesn't this bypass the whole problem ?
As quoted above from para202 of the Independent Taxation Manual:
"Where there is a straightforward gift or transfer of an asset from the sole ownership of a husband or wife into joint ownership by the couple the income from the asset should be divided between the husband and wife in accordance with the normal rules for jointly held property.”
and in the relevant para 129 on jointly held assets -
"From 6 April 2004, the 50:50 rule does not apply to income arising from shares held in a close company. Broadly, a close company is a company controlled by no more than five people. Where a married couple or civil partners hold shares in a close company in joint names, each spouse or civil partner is taxable in proportion to their entitlement. For example, if the wife/civil partner A is entitled to 90% of the jointly held shares, and the husband/civil partner B is entitled to 10%, the wife/civil partner A is taxable on 90% of the income, and the husband/civil partner B is taxable on 10%"
- thus if the written intention of the transfer was that husband and wife each have equal 50% interest in the jointly held shares, then surely the income is automatically split 50/50 ? Because the shares are held jointly, there is also no problem about paying dividends into a joint bank account. I guess this depends crucially on the meaning of the word "entitlement". But how else can it be construed than the proportion of ownership of the shares ?

i hold to my view that artic is not appropriate for the above - at best it is a gift with reservation. if a loss is made perhaps some partner will claim loss relief from HMRC on the grounds that it should be at 40% not basic rate/.

Re Steve's comments on joint ownership - we tried this for a client a couple of years ago, and so far not challenged, but I'm not confident this will work post-Arctic

ie on reading... "Where there is a straightforward gift or transfer of an asset from the sole ownership of a husband or wife into joint ownership by the couple the income from the asset should be divided between the husband and wife in accordance with the normal rules for jointly held property.” It would appear to be fine, but......

In the case of a hubby/wife co where all the skills are his, and she only does the admin, surely there would be "bounty" with transfer of shares into joint ownership, but scarily without the crutial exemption for outright gifts between spouses at section (6) ie the gift is not outright.

Comments here gratefully received!

The drinking, smoking, swearing tax adviser...

Don't understand the above comments. If a dividend is paid to wife and she pays the dividend in to the joint bank account so what is the problem. The wife is suppose to contribute to the repayment of a mortgage, and sharing in the household bills and expenses.
Our PM Gordon Brown started this by abolishing the tax credit on dividends. Also the DTI were encouraging people to form companies. The Joneses did nothing wrong. They only followed the tax laws. Mr. Garrnett was a very ambitious inspector. This case should have been put to bed by the commissioners. The inspector who cost so much tax payers money what has happened to him. Has he been sacked or lined up for knighthood, I wonder.
Our Gordon was happy to take the money from pension funds but when it seemed that the people were not paying tax on dividends then he did not like it. When he introduced this law he did not think the long term problems.Please let us have a fair play.