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Two's company
There have been stories in the press suggesting that the Revenue are embarking on a 'crackdown' on companies which split a business - and its profits - between a husband and wife. This has big tax advantages if one of the couple has no other income - it can save about £8,000 a year in comparison to one spouse having it all. In the past, it has been well known that paying your spouse an excessive salary for non-existent 'duties' was open to Revenue attack, but having the spouse buy ordinary shares in the company, and paying dividends, was thought to work well.
At the moment, it is hard to say whether this is a widespread problem. The Revenue have said that they only raise it in about 50 cases a year, which is not many. Of course, if you happen to be one of those 50, it's a major issue - and if the Revenue decide that it could be a money-spinner, it might be a concern to almost any couple where one spouse has given shares in a family business to the other. It can't affect a gift of shares in an unconnected company (for example, Stock Market investments), as long as the gift is made 'outright' with no strings attached.
There are many arguments which can be used to defend the validity of the split of the income. They will depend on the circumstances of a particular couple, and also on anything further that comes from the Revenue and the Courts. There is a suggestion that there will be a test case later this year, which may clarify what sort of arrangements are vulnerable. We will keep you posted on developments.
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For further details, see Taxation 13 March 2003, Tax Adviser May 2003, and the Revenue's Tax Bulletin 64 (April 2003). This is likely to be a long and heated argument, if the writers are correct and the Revenue are about to take an aggressive line on this issue.
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