Settlements Legislation

It became well known as a result of the Arctic Systems case, in which HMRC tried to prove that IT contractor Geoff Jones, the fee-earning spouse in a husband-and-wife-owned limited company, had made a ‘bounteous settlement’ of shares in his company on his wife Diana, a non-fee earner. HMRC argued that the resulting dividend payments to Diana should be treated as Geoff Jones’ income, and taxed accordingly.

HMRC lost the case, which provided contractors with certainty about the settlements legislation’s exemption for spouses and civil partners. If a contractor gives ordinary shares to a spouse or civil partner, the transaction is exempt from the settlements legislation and there are no capital gains tax or inheritance tax liabilities.

The original settlements legislation dates back to the 1920s and was subsequently updated in 1988, when it became the more familiar Section 660. It was changed again in 2005 when it was rewritten into its current form as the less well known but correct name, Section 624 of the Income Tax (Trading and Other Income) Act (ITTOIA) 2005

^ TopWhat is the settlements legislation?

Contractor guide to Section 1030A distributions (ESC C16) closing a limited company
Contractors can extract cash tax efficiently as capital when closing their limited companies, by using Section1030A distributions (formerly ESC C16).

Settlements legislation (S624/S660): minimising risks of an inspection and penalties
Contractors sharing income with a non-fee-earning partner can adopt a number of strategies to avoid an HMRC inspection that could result in penalties.

How much will the settlements legislation S624 ITTOIA 2005 cost contractors?
Contractors who are income splitting with a non-fee-earner and who find the settlements legislation applies could be seriously financially worse off.

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