Income shifting ― where are we now?

Produced by a Tolley Personal Tax expert

Personal Tax

Guidance

This guidance note looks at the how the settlement legislation may be applied to income shifting and how this has been viewed by the courts since the 2007 Arctic Systems case.

The settlement legislation is discussed in the Income shifting guidance note and it is suggested that the income shifting note would be a good starting point, before addressing the more specific comments on application of case law and HMRC guidance outlined below.

Overview

Arctic systems was a landmark case, and little substantive has happened in the years following. As this is still a key case, it is considered in detail below after a review of some more recent developments.

Some recent cases

There have been relatively few cases reaching the courts and each has turned on its own facts. They illustrate the likely challenges to income shifting arrangements and suggest a best approach to planning.

In Donovan and McLaren v HMRC, the issue was dividend wavers. Applying the guidelines in the Income shifting guidance note, it would come as no surprise to

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