InRobert Huitson v HMRC [2015] UKFTT 448 (3 September 2015), the FTT found that retrospective legislation had rendered a scheme ineffective.
Mr Huitson was an electrical engineering consultant resident in the UK. In April 2001, he had implemented a scheme which involved setting up an Isle of Man trust, of which he was the settlor and in which he had a right to income. The trust had become a partner in an Isle of Man partnership, which in turn had entered into a contract with Mr Huitson to provide his services. Under his contract with the partnership, Mr Huitson was entitled to an annual fee of £15,000. He was also entitled to a share of the partnership profits as a beneficiary under the trust.
Under the terms of the double tax treaty between the UK and the Isle of Man, income tax and NICs were due on Mr Huitson’s annual fee, but not on the profits he received as beneficiary of the trust. Since then, ITTOIA 2005 s 858 had been enacted with retrospective effect to counteract such schemes.
However, the intended effect of the trust structure implemented by Mr Huitson was that his trust income would be treated as being of the same nature as the underlying trust income, namely a share in the partnership profits; and, since he was not a member of the partnership, s 858 would not operate. Section 858(4) was therefore added with retrospective effect by FA 2008, providing: ‘For the purposes of this section the members of a firm include any person entitled to a share of income of the firm.’ However, Mr Huitson contended that s 858(4) was not effective to counteract the scheme, as he was entitled to a share of the profits but not to a share of the income.
The FTT accepted that it would have been preferable for Parliament to refer to profits, rather than income. However, s 858(4) had been enacted precisely to counter such schemes; and so, on a purposive interpretation of the provision, it was clear that it referred to a share in the profits of the partnership.
Why it matters: The scheme implemented by Mr Huitson has been the subject of a long and complex judicial saga. Mr Huitson had also initiated judicial review proceedings on the ground that the retrospective amendments had been contrary to the European Convention on Human Rights (ECHR). His appeal had been dismissed by the Court of Appeal (R (Huitson) v HMRC [2011] EWCA Civ 893). The Court of Appeal had also heard and dismissed another challenge to the scheme by way of judicial review (R (Shiner & Sheinman) v HMRC [2011] EWCA Civ 892), in which the claimants had alleged both a breach of TFEU and of ECHR.
InRobert Huitson v HMRC [2015] UKFTT 448 (3 September 2015), the FTT found that retrospective legislation had rendered a scheme ineffective.
Mr Huitson was an electrical engineering consultant resident in the UK. In April 2001, he had implemented a scheme which involved setting up an Isle of Man trust, of which he was the settlor and in which he had a right to income. The trust had become a partner in an Isle of Man partnership, which in turn had entered into a contract with Mr Huitson to provide his services. Under his contract with the partnership, Mr Huitson was entitled to an annual fee of £15,000. He was also entitled to a share of the partnership profits as a beneficiary under the trust.
Under the terms of the double tax treaty between the UK and the Isle of Man, income tax and NICs were due on Mr Huitson’s annual fee, but not on the profits he received as beneficiary of the trust. Since then, ITTOIA 2005 s 858 had been enacted with retrospective effect to counteract such schemes.
However, the intended effect of the trust structure implemented by Mr Huitson was that his trust income would be treated as being of the same nature as the underlying trust income, namely a share in the partnership profits; and, since he was not a member of the partnership, s 858 would not operate. Section 858(4) was therefore added with retrospective effect by FA 2008, providing: ‘For the purposes of this section the members of a firm include any person entitled to a share of income of the firm.’ However, Mr Huitson contended that s 858(4) was not effective to counteract the scheme, as he was entitled to a share of the profits but not to a share of the income.
The FTT accepted that it would have been preferable for Parliament to refer to profits, rather than income. However, s 858(4) had been enacted precisely to counter such schemes; and so, on a purposive interpretation of the provision, it was clear that it referred to a share in the profits of the partnership.
Why it matters: The scheme implemented by Mr Huitson has been the subject of a long and complex judicial saga. Mr Huitson had also initiated judicial review proceedings on the ground that the retrospective amendments had been contrary to the European Convention on Human Rights (ECHR). His appeal had been dismissed by the Court of Appeal (R (Huitson) v HMRC [2011] EWCA Civ 893). The Court of Appeal had also heard and dismissed another challenge to the scheme by way of judicial review (R (Shiner & Sheinman) v HMRC [2011] EWCA Civ 892), in which the claimants had alleged both a breach of TFEU and of ECHR.
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