In Donovan & McLaren v HMRC (TC03188 – 6 January 2014) the issue was whether dividend waivers executed by the appellants in favour of their wives constituted a settlement for income tax purposes. If they did then under ITTOIA 2005 s 624 the dividends remained taxable in the hands of the appellants as settlors unless the appellants were able to show that the waivers were ‘outright gifts’ (s 626).
The tribunal rejected the appellants’ contention that the waivers had been executed to maintain the company’s reserves and cash balances and found that the intention behind the waivers was tax geared; ‘to bring about a near equalisation of the appellants’ and their wives’ dividend income thereby reducing their aggregate liability to income tax’.
Furthermore applying Jones v Garnett [2007] UKHL 35 the tribunal noted that a tax purpose was not necessary in circumstances where an arrangement...
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