In its United Kingdom Tax Bulletin 64 (April 2003), the
Inland Revenue (now
HM Revenue and Customs) announced new guidance on the "settlements legislation". This is a body of law which seeks to prevent someone (known as the "
settlor") from avoiding tax by reclassifying income as belonging to someone else (known as the beneficiary). The income is then taxed at the beneficiary's lower rate although the settlor continues to benefit from it. The legislation targets spouses and also parents seeking to divert income via their minor children. Section 660A of the Act (added by the
Finance Act 1995) covered this issue. Using the revised (April 2003) interpretation of s.660A, UK HMRC have been targeting businesses set up by spouses where they are aware that income is split between the spouses, and only one of them directly generates that income. In theory s.660A can apply to partnerships as well as limited companies, this has yet to be tested in the UK courts. In 2007 the interpretation was finally rejected by the Law Lords, resulting in the government proposing new legalisation to tackle the perceived abuse. This section was repealed by the Income Tax (Trading and Other Income) Act 2005 with effect from 6 April 2005. ==Amendments==