Government turns its eye to income splitting once more

The question of family firms that split income between husbands and wives in order to reduce tax bills may come under the scrutiny of the Office of Tax Simplification (OTS).

For HM Revenue and Customs (HMRC), the issue has long been a challenging one. In the past, the tax authority has used laws passed in 1930s to stop family businesses shifting income between spouses through dividend payments as a means of limiting tax liabilities.

The Treasury had promised to legislate in 2007 to make the law clearer, but a subsequent consultation yielded no new laws. Now the OTS, set up by the Government to streamline the tax system, may be re-examining the matter. John Whiting, the tax director at the OTS, has suggested that income splitting could be under review again.

Mr Whiting said: “Income splitting is in the pretty-difficult-to-do box because it has been looked at a heck of a lot. We have to come up with some ways forward. I hope we can come up with some quick tweaks that can make a difference, but I am no under illusions that some of the things we could come up with will require some serious study.”

The tax system looks all set to undergo a series of reforms, which means that the start of 2011 may be an opportune time to examine your own tax planning. Remember: we are here to help make sure that you both comply with the rules and pay no more tax than you should be paying.

For more information contact Bernadette Gibson at bernadette@jackross.co.uk or visit our Contact Page.