Giving some income to a spouse has always been a way to lower taxes. However the process known to many as income splitting will soon come under great scrutiny in the forthcoming budget.
Since the introduction of the independent taxation of married couples back in 1990, married taxpayers have sought to minimise overall income tax liabilities by ensuring, where possible, that each spouse utilises their personal allowance and lower tax band. In particular the use of a family run company where in order to extract profits a dividend or salary gets paid to the wife.
The most famous case known as 'Artic Systems Limited' which HMRC lost involved a family run IT Company where the wife only spent a few hours a week doing administrative work. At the end of the year they both received a 50/50 split in the dividends. HMRC challenged this and lost in courts stated this was not caught by the settlement legislation. This is a very basic description of what was a large case and if you are interested in knowing more just drop me an email.
Speaking to the Telegraph, the tax director of HMRC (Treasury Office of Tax Simplification), John Whiting said that income splitting was one of the issues it was looking into, alongside National Insurance Contributions and IR35. "I hope we can come up with some quick tweaks that can make a difference, but I am no under illusions that some of the things we could come up with will require some serious study. I don't think we were ever confident that income splitting was in that 'never to come out again' box," said Whiting. "It is in the Dracula category. I don't think anyone ever put the stake through its heart"
You have been warned. If you have a family run business now is the time to look into your structures and ways of extracting profits. For those that are thinking of proposing to their other half, just to use your their tax exemptions I am afraid you will have to just marry for love !!!
Contact me for further information mitch@ljd.uk.com
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