Originally posted by oilboil
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I suggest you re-read the last paragraph of your post and then you’ll realise that the first sentence of your post is nonsense.
Arctic established the conditions under which income splitting with a spouse can work (the spouse exemption HAS to apply). It most definitely did not establish that spouses were “exempt” from the legislation. The case also established that the transaction was definitely a settlement due to its bounteous nature and if HMRC had successfully argued that the spouse exemption did not apply in that case they would have won.
In the absence of the spouse exemption applying, settlements between spouses are caught *by default*. This is because a settlor is deemed as retaining an interest in any shares or derived income if they can be applied for the benefit of either themselves OR THEIR SPOUSE.
It’s all there in the legislation in black and white. HMRCs own guidance states that while the settlements legislation can potentially apply to anyone, it is typically applied to settlements “between spouses, civil partners or minor unmarried children”.
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