HMRC loses husband-and-wife settlements case
The First-Tier tribunal found in favour of a couple who faced tax assessments of nearly £20,000 on dividends that HMRC claimed were paid as part of a settlement under s660a of the Income and Corporation Taxes Act 1988.
In a decision published this month, tribunal judge Barbara Mosedale concluded that an arrangement under which David Patmore paid his wife dividends on non-voting B shares in their company did not fulfil the criteria for an s660a settlement.
In the late 1990s Mr and Mrs Patmore paid £320,000 to buy the small manufacturing company for which Mr Patmore worked. The first instalment of £100,000 was funded by a second mortgage the couple took out on their house.
Following the advice of their accountant, RJ McMorran, the company's shares were reorganised into two classes of shares, with Mrs Patmore owning 2% of the A shares and 10% of the non-voting B shares, on which dividends were paid between 1999-2003. The dividends were immediately credited to Mr Patmore’s loan account to set against the outstanding purchase payments for the company. HMRC argued that under this arrangement, the B share dividends should be taxed on Mr Patmore as a settlor.
When looking at "the broad and realistic view" of the case, the judge ruled that this was not the case.
A spokesman for HMRC said the department is considering the judgment carefully before deciding on any further course of action.