Following the decision given in Jones v Garnett ("Arctic Systems") in the House of Lords on 25 July and subsequent Ministerial Statement, HMRC have now published guidance on how they will deal with cases which were awaiting the outcome of the appeal.
On 25 July 2007 the House of Lords gave its judgement in the case of Jones v Garnett (also known as “Arctic Systems Ltd"). HMRC had previously lost this case in the Court of Appeal and as a result had appealed to the House of Lords. The case concerned dividends payments made by a company to Mrs Jones through which Mr Jones provided IT consultancy services. HMRC’s view was that the settlements legislation deemed the dividends received by his wife to be Mr Jones’ for income tax purposes. The House of Lords, however, has now ruled in favour of Mr Jones.
On 26 July 2007 the Exchequer Secretary to the Treasury, Angela Eagle made a Written Statement to Parliament, advising that legislation will be brought in which will effectively reverse the Lords' decision.
HMRC had been keeping open some similar cases to that in Jones v Garnett whilst they waited for the decision in the House of Lords. These cases will now be reviewed and settled in line with the Jones v Garnett decision if appropriate. Of course, each case will be different, and will need to be considered on its individual facts, but unless there are any additional factors which might cause HMRC to take a different view, they expect that most cases where the settled property comprises:
- ordinary shares in a company, or
- an ordinary (ie unlimited) interest in a partnership,
will be within the exemption for outright gifts between spouses.
Self Assessment returns for the tax year 2005/2006 had to be delivered to HMRC by 31 January 2007. HMRC explained in guidance at that time, that these returns should be completed in line with the Court of Appeal decision, which was in favour of Mr Jones, and suggested that the blank space in the return form could be used by the taxpayer to say that they had done this. Now that the House of Lords has also ruled in favour of Mr Jones, these returns will not need to be amended.
Self Assessment returns for the tax year 2006/2007 have to be delivered to HMRC by 31 January 2008. These returns should be completed in line with the House of Lords decision, which was in favour of Mr Jones. HMRC are preparing new detailed guidance on the settlements legislation in line with the decision and will issue it this autumn in good time for people to be able prepare the 2006/2007 returns
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