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Husband & Wife Directors

Husband and Wife are directors of a limited company. Wife runs the business and takes a salary. Husband is employed elsewhere and his role in the company is purely advisory capacity.

Wife wants to take a dividend for first time and husband doesn't want/need a dividend as this will take him over the basic tax threshold and also he hasn't contributed anything to the company so far in terms of work so no remuneration due. Are there any problems with just one Director receiving a dividend?? Aren't all shareholders due a dividend?


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By okevin
24th Nov 2010 21:36

Yes. Problem.
Divis need to be issued on a strict pro rata basis.

Classic example where dividend waiver is useful.

Also consider share transfer for long term solution.

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25th Nov 2010 08:35


If the wife does waive her rights to the dividend, just make sure you have sufficient distributable reserves to pay the full dividend (i.e. to both husband and wife) as if the waiver was not made.  Otherwise the dividend declared could be illegal, because the waiver by the wife is an event that happens after the dividend is declared.

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By PennyC
25th Nov 2010 10:32


Waivers of dividends are usually made before the dividend is declared. So, providing it is properly executed, 100% of the available reserves may be distributed to the wife.

Of course, that may give rise to tax problems, if there is a loss of higher-rate tax that would have been payable in the hands of the directors. But I've always been curious as to how that interacts with settlement provisions - if wife is the sole income generator, presumably HMRC could not reasonably argue that the waiver gave rise to bounty?

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By blok
25th Nov 2010 11:02


Is that a can of worms I hear being opened!!


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25th Nov 2010 11:34

??? Calling R.B.

I understood that even when the waiver is correctly raised, there must be sufficient available profits to pay the full dividend. 

Also I believe that HMRC's view is that this must be on a cumulative basis, i.e. that the same profit cannot be continually 'waived'.  Opinions on this appear to differ, even amongst Tax Lecturers.

Perhaps Rebecca could clarify?

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25th Nov 2010 11:52

HMRC manuals

There is a useful part of HMRC manuals on this topic...

"You should look out for the following factors, which would indicate that the Settlements legislation is likely to apply.

The level of retained profits, including the retained profits of subsidiary companies, is insufficient to allow the same rate of dividend to be paid on all issued share capital."

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25th Nov 2010 15:08

Recent tax case

I'm not a tax expert, but wasn't there a recent tax case in which a huge dividend was waived by the husband, but the dividend received by the wife ended up being taxed.

Found the case - Buck v HMRC SpC 716 23.10.08)

Don't know if that helps.


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By PennyC
25th Nov 2010 15:20


is a very useful case to counter those arguing that a company can only distribute pro-rata amounts of dividends to participating shareholders even when there are waivers in place. Yes, the dividends in that case were taxed on the husband, but what the case - and related commentary - confirmed was that a company may legally distribute all of its reserves to a single shareholder if all other shareholders have waived their entitlement.

The taxation of such dividends is a different matter altogether from the legality or otherwise of their payment. In Buck, it was clear that there was an element of bounty. But if, in this case, the husband has no active role in the company, is there bounty if all of the dividends are paid to the wife? There may be some, but nothing like a full pro-rata amount.

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26th Nov 2010 11:01

Thanks Penny

and others for stepping in - I was on a trip to No 11 Downing Street yesterday.

Yes, the legality (company law) is fine if waivers are in place before the divi is declared. If you don't get the paperwork right and do the waiver first then you have a potential IHT issue.

As far as tax is concerned, we are into settlements, and it is certainly one of the things HMRC looks for (as mentioned above). A dividend waiver acnnot be an outright gift of property so you will not have the protection of the husband and wife exemption. I don't, however, subscribe to the view that the availability of profits pro rata is cumulative - Year 1 Profits available £100. Divi to holder of 50% shares = £50 max or might have a settlement. Year 2 Profits available £150 (including £50 from last year) Divi to holder of 50% shares = £75.

Hope this helps

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