The taxpayer, a well known film actor, agreed to work through a company for three years being paid andpound;50 per week. The shares were transferred to his wife and accountant. His father in law set up a andpound;100 settlement for the benefit of his children of which his wife and accountant were the trustees. The fund was used to subscribe for the remaining 98 shares. He appeared in a film for which the company was paid andpound;25,000. The company paid a dividend which was applied by the trustees for the benefit of the children. Jack Hawkins then applied on behalf of his children for a repayment of tax to give effect to their personal allowances. The repayment claim was rejected on the grounds that the whole arrangement was a settlement of which Jack Hawkins was a settlor because he had provided the funds for it.
Held: Jack Hawkins’ appeal was dismissed. It was argued the settlement executed by the father in law had not been contemplated at the outset and could not be included in any arrangement. Donovan LJ: ‘I will accept for the moment the proposition that the family settlement which followed was not decided upon at the outset; but what is important, I think, is that the eventual enjoyment by some individual or individuals of the money which had escaped surtax must have been in contemplation at the outset. Otherwise, as I say, the scheme had no rational purpose.’ and ‘But, even were it otherwise, I think that there is sufficient unity about the whole matter to justify it being called an ‘arrangement’ for this purpose, because, as I have said, the ultimate object is to secure for somebody money free from what would otherwise be the burden, or the full burden of surtax. Merely because the final step to secure this objective is left unresolved at the outset and decided upon later does not seem to me to rob the scheme of the necessary unity to justify it being called an ‘arrangement’.’
Pearce LJ, agreeing said: ‘The mere fact that he [Jack Hawkins] did not concern himself with some of the steps in the legal machinery involved does not make it any the less his arrangement within the [section]. A man does not avoid the incidence of [the section] by merely being absent from, and leaving to his solicitors and accountants, certain parts of the legal machinery, if he is aware of the proposals for an ‘arrangement’ or a settlement and actively forwards them by personally carrying out and assisting in the vital parts in which his performance and co-operation are necessary.’
Judges:
Donovan LJ, Holroyd Pearce LJ, Upjohn LJ
Citations:
[1961] Ch 537
Statutes:
Jurisdiction:
England and Wales
Cited by:
Cited – Jones v Garnett (Inspector of Taxes) ChD 28-Apr-2005
The taxpayer worked as an information technology specialist. His earnings were channelled through a limited company. The company paid on part of its income to his wife, with the result that the total tax paid was reduced. The inspector sought to tax . .
Cited – Mills (Hayley) v Commissioners of Inland Revenue HL 12-Feb-1974
Surtax – Settlement – Arrangement – Settlor – Fees for actress’s services paid to company but enuring for her benefit – Actress aged 14 when arrangements made – Settlement with more than one settlor – From whom income originates – Income Tax Act . .
Cited – Jones v Michael Vincent Garnett (HM Inspector of Taxes) CA 15-Dec-2005
Husband and wife had been shareholders in a company, the wife being recorded as company secretary. The company paid dividenceds to both. The husband appealed a decision that the payment to his wife was by way of a settlement and was taxable in his . .
Cited – Jones v Garnett (Her Majesty’s Inspector of Taxes) HL 25-Jul-2007
The husband and wife had each owned a share in a company which sold the services of the husband. The Revenue claimed that the payment of dividends to the wife was a settlement.
Held: The Revenue failed. The share had been transferred to the . .
Lists of cited by and citing cases may be incomplete.
Income Tax
Updated: 27 November 2022; Ref: scu.224942