In Mark Dunsby v HMRC [2021] UKUT 0289, the Upper Tribunal (UT) found that dividends paid through a trust under a scheme to transfer tax-free cash to a company owner were still taxable on the owner. They would also be caught by the Settlements and Transfer of Assets Abroad anti-avoidance rules.

Mr Dunsby used his company Majordegree Ltd to enter into a tax scheme that aimed to extract tax-free dividends from the company.

The First Tier Tribunal (FTT) dismissed his appeal finding that:

The Upper Tribunal dismissed the appeal on all grounds raised.

The Distribution issue

The Settlements issue

Whilst not relevant if they were right about the distribution point, the UT went on to consider the Settlements legislation in case they were wrong.

The Transfer of Assets Abroad Issue

The Transfer of Assets Abroad (TOA) rules were only relevant if Mr Dunsby was not chargeable on the distribution directly and if Mrs Gower was the only settlor so that the Settlements rules could not apply.

As the FTT had made an error of law in its conclusions on the distribution issue the UT was able to remake the decision. The FTT had found Mr Dunsby taxable under the settlements rules which meant that all of the income of the trust was taxed on him as settlor i.e. £200,000. The UT held that under the distributions rules he was only taxable on the amount he received, and was entitled to, which was £195,400. 

Useful guides on this topic

Transfer of Assets Abroad (TOA)
What are the ToA rules? When do they apply? Is there any defence against the rules?

Settlement anti-avoidance rules
What are the settlement anti-avoidance rules? How do these rules catch some common family tax planning? What are the rules for spouses and other family members?

Dividend tax: subscriber guide
This practical tax guide explains how dividends are taxed on or after 6 April 2016. It includes HMRC's own examples, more detailed examples, including an Owner Managed Business (OMB) section together with tax planning tips.

External link

Mark Dunsby v HMRC [2021] UKUT 0289 

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