No More Trouble and Strife For Husband and Wife Businesses
The House of Lords issued a landmark ruling last Wednesday, bringing to an end a long running saga in the form of an attack on tax planning arrangements involving husband and wife businesses.
The Lords found unanimously in favour of the taxpayers, Mr & Mrs Jones, in the Arctic Systems case. HM Revenue & Customs (HMRC) had pursued Mr & Mrs Jones over a number of years seeking to tax the income paid to Mrs Jones from their family owned company as the income of Mr Jones. This had the potential to yield significant extra tax for the Exchequer, not just from the Jones’, but from many similar family business arrangements across the taxpaying population, and would have made family business tax planning considerably more problematic.
HMRC had attempted to argue that such family arrangements were caught by tax legislation designed to tackle avoidance using settlements. They contended that Mrs Jones benefited from the gratuitous arrangement established by her husband - in this instance a share in the company and payment of a dividend. The House of Lords have dismissed their arguments. Tax Manager for Greenhalgh & Co, Martin Tomes, commented that “good sense has prevailed so that, given the right advice, tax planning for family businesses can still be effective”.