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Income shifting


Produced by a Tolley Personal Tax expert
Personal Tax
Guidance

Income shifting


Produced by a Tolley Personal Tax expert
Personal Tax
Guidance
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This guidance note considers how the settlements legislation can apply to income shifting, particularly as regards a family company.

Overview of the settlement provisions

A popular tax planning approach is to transfer income-producing assets between spouses or civil partners. This may be done where one pays income tax at a lower marginal rate than the other, or to ensure that personal allowances are used in full. Such arrangements are also known as β€˜income splitting’ or β€˜income shifting’. They have long been the subject of HMRC scrutiny.

The scope for tax saving is potentially greater with the introduction of the additional tax rate from 6 April 2010.

Inter-spousal / civil partner tax planning is assisted by the fact that for capital gains tax purposes, the transfer of income-producing assets should be a no-gain no-loss transfer. See the Inter-spouse transfer guidance note.

One aspect which has come under the spotlight is that such transfers may constitute a settlement. The settlement rules, as discussed below, are complex but they can result in income being taxed on the donor despite the transfer

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  • 04 Dec 2023 13:10

Home/ Tolley Tax Guidance/ Personal Tax / Family tax planning

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