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The Arctic Systems case and the settlements legislation

A collection of resources focused on the Jones v Garnett (Inspector of Taxes) tax case, also known as the Arctic Systems case.

What's on this page?

  • Case background
  • Online articles
  • Useful links
  • Articles and books from the Library

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The case

HMRC had argued that a business carried on by a husband who then allowed his wife to take a substantial percentage of the profits through dividends would constitute a "settlement" for the purposes of section 660A Income and Corporation Taxes Act 1988 (latterly section 619 onwards of the Income Tax (Trading and Other Income) Act 2005).

The case made its way through the Special Commissioners, the High Court and the Court of Appeal before reaching the House of Lords in June 2007. In their judgement of July 2007 the Law Lords concluded that there had been a settlement but that it fell within the spousal gift exemption, thereby rejecting the final appeal from HMRC.

HMRC subsequently won other cases involving husband and wife businesses with income splitting arrangements where the situations were not identical to the Arctic systems case.

This page is no longer updated but any new articles or books on the settlements legislation and income splitting will be listed in our catalogue (see the links at the bottom of this page).

Online articles

The Library provides access to leading business, finance and management journals. These journals are available to logged-in ICAEW members, ACA students and other entitled users subject to suppliers' terms of use.

Splitting image

Questions whether income-splitting creates a settlement of income from one person to another, with reference to the Arctic Systems Case.

Jones v Garnett: it's not over yet

Looks at the Arctic Systems case, where the firm's owners were pursued by HMRC over taxes on dividends they claimed as income.

Me & Mrs Jones

Discusses the outcome of Jones v. Garnett (the Arctic Systems case) and its implications for the taxation of dividends.

Showing 3 of 4 items

Useful links

The final judgement and analysis

Jones (Respondent) v. Garnett (Her Majesty's Inspector of Taxes) (Appellant)
Full text of the House of Lords judgement ([2007] UKHL 35) in the Arctic Systems Case, as published on 25 July 2007.

Jones v Garnett : Overview of the final judgement
Article from July 2007 looking at the decision in the Arctic Systems case and a number of additional points. Requires registration.

The Settlements Legislation
This issue of ICAEW's Tax Practice from December 2007 discusses the settlements legislation and the view of HMRC. It considers the earlier decisions in Jones v Garnett before focusing on the House of Lords judgement in this case. It then discusses the November 2007 HMRC guidance in this area and what a tax accountant can and should do in light of new developments. More in-depth discussion of the earlier decisions in the Arctic Systems case can be found in TAXline Tax Practice No 14.

Earlier judgements

The full text of the earlier judgements are available from the British and Irish Legal Information Institute (BAILII).

Court of Appeal
Jones v HM Inspector of Taxes [2005] EWCA Civ 1553 (15 December 2005)

High Court
Jones v Michael Vincent Garnett (HM Inspector of Taxes) [2005] EWHC 849 (Ch) (27 April 2005)

Special Commissioners
Jones v HM Inspector of Taxes [2004] UKSC SPC00432 (28 September 2004)

Articles and books in the Library collection

To find out how you can borrow books from the Library please see our guide to book loans.

You can obtain copies of articles or extracts of books and reports by post, fax or email through our document supply service.

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