HM Revenue & Customs (HMRC) has lost a claim against a couple for £20,000 in back taxes.
The Revenue claimed tax was due on dividends paid as part of a settlement under the Income and Corporation Taxes Act 1988.
However, in a decision published this month, the First-Tier tribunal found in favour of the couple.
Tribunal judge Barbara Mosedale concluded an arrangement under which David Patmore paid his wife dividends on non-voting B shares in their company did not fulfil the criteria for an s660a settlement.
In the late 1990s, Mr and Mrs Patmore paid £320,000 to buy the small manufacturing company for which Mr Patmore worked.
The husband and wife jointly funded a share purchase with 97% of shares bought transferred to the husband and a new class of shares allotted to his wife.
An initial instalment of £100,000 for the shares was funded by a second mortgage the couple took out on their house.
Mrs Pamore received approximately 40% of the dividends.
Following the advice of their accountant, RJ McMorran, the company's shares were reorganised into two classes of shares, with Mrs Patmore owning 2% of the A shares and 10% of the non-voting B shares, on which dividends were paid between 1999-2003.
The dividends were immediately credited to Mr Patmore's loan account to set against the outstanding purchase payments for the company.
HMRC argued that under this arrangement, the B share dividends should be taxed on Mr Patmore as a 'settlor'.
However, when looking at "the broad and realistic view" of the case, the judge ruled this was not the case.
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