The company created a special class of preference shares and allotted them to the wives of the two shareholders and directors. When substantial preference dividends were paid to the wives, the husbands were assessed to tax on them. They conceded that the issue of the preference shares to the wives involved an element of bounty on the part of their husbands.
Held: The creation of the preference shares, the application by each wife and the allotment of the same constituted an arrangement or disposition within the definition of settlement. The wives contended that the subsection was disapplied. The judge rejected that submission on the ground that the preference share was ‘wholly or substantially a right to income’. The share conferred nothing except the right to 30% of the net profits before distribution of any other dividend and repayment on winding up of the nominal amount subscribed for their shares.
Judges:
Sir John Vinelott
Citations:
(1996) 70 TC 331
Jurisdiction:
England and Wales
Citing:
Applied – Copeman v Coleman 1939
A company had been formed to take over the taxpayer’s business. He held the shares equally with his wife. Later the company created a class of preference shares of andpound;200 each carrying a fixed preferential dividend, the right to vote if such . .
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 . .
Distinguished – 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: 01 May 2022; Ref: scu.236564