An interest free loan was made to an associated company from the taxpayer’s mother which was then replaced by another interest free loan from the taxpayer. The circle of loans included an interest bearing loan to the taxpayer from the trustees of a settlement made by the taxpayer’s mother in which the taxpayer was interested. The Revenue assessed the taxpayer to tax on the income of the settlement which included the interest payable on the loan to him. The taxpayer accepted the conclusions of the Special Commissioners that the circular transaction constituted an ‘arrangement’ within the relevant definition and that the taxpayer was a settlor. The outstanding issue was whether the interest on the loan paid by the taxpayer to the trustees was income originating from him.
Held: ‘On the face of it, it obviously is income provided by him in the sense that he paid it, but it is common ground that it is implicit in the fasciculus of sections of which section 401 forms a part that some element of bounty is necessary to make the sections apply and that a bona fide commercial transaction would be excluded from their operation.’ and ‘The arrangement in my view must be looked at as a whole, and looked at in this way, I find it impossible to say that the [taxpayer] did not provide the trustees with an income of [the amount of the interest] a year in the sense in which the word ‘provided’ is used in s.401..that is to say as importing an element of bounty. The transaction, taken as a whole, was not, in my judgment, one which, from the point of view of the [taxpayer] can be described as a commercial arrangement because he was liable to pay [the amount of the interest] without any compensating advantage to him.’
Judges:
Plowman J
Citations:
(1964) 41 TC 589
Jurisdiction:
England and Wales
Cited by:
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 (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 – 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: 10 May 2022; Ref: scu.236558