- Failure of scheme designed to allow shareholders to receive distributions free of income tax using the settlements legislation (Dunsby v HMRC)
- What are the practical implications of this case?
- What was the background?
- Factual background
- Issues before the FTT
- What did the FTT decide?
- Case details
Private Client analysis: The case concerned Mr Dunsby’s participation in a tax avoidance scheme, known as ‘Project Scimitar’, which was designed to allow shareholders in trading companies with distributable profits to receive those profits free of income tax by using the settlements legislation in Part 5 of the Income Tax (Trading and Other Income) Act 2005 (ITTOIA 2005). Mr Dunsby argued that the relevant income fell within the scope of the settlements legislation and should be treated as the income of another person, not him. HMRC argued that either the income was to be treated as Mr Dunsby’s under the settlements legislation or that the settlements legislation does not prevent a charge to income tax. The First-tier Tribunal (FTT) held that the payment received by Mr Dunsby was not a dividend or distribution, but that Mr Dunsby was a settlor of a settlement and the income arising under the settlement should treated as Mr Dunsby’s. As such, he was subject to tax on the income of the settlement. Written by Kelly Stricklin-Coutinho, barrister, at 39 Essex Chambers.
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