ITTOIA 2005: ss 624-627 settlements rules

[Mr P]

Hi

I read in the Tolley's Tax Guide 2005/06 concerning outright gift of income-producing property that such a gift is not caught by the above provisions unless:

1) the gift does not carry a right to the whole income, or

2) the property given is not wholly or substantially a right to income.

Restated, they read as follows:

An outright gift is not caught by the provisions:

1) if the gift carries a right to the whole income, or

2) if the property given is not wholly or substantially a right to income.

There seems to be a contradiction between 1) and 2).

Could someone please confirm if my reading is correct. Thanks.

MrP

[King_Maker]

No contradiction, merely 2 different hurdles to overcome.

Broadly speaking :

1) Donee must receive 100% of the income from the asset.

2)Donee must potentialy receive a capital asset.


It is item 2) which HMRC are saying does not exist for (typically) service companies with no assets and a single income producer.

The "Artic Systems" case, based oth Settlements legislation is due to come before the Court of Appeal. HMRC won before the Special Commissioners and the High Court.

IMHO, HMRC's case is mis-conceived, and should not succeed - although it might take House of Lords to decide.

[Mr P]

Thanks King-Maker. That makes sense.