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Partial Dividend Waivers

I've always been taught that if you waive a dividend, you waive full entitlement to that dividend.

For example: 2 shareholders, £50,000 dividend proposed. 1 shareholder takes full entitlement, £25,000. The other shareholder only wants to take £10,000. Can he put a partial waiver in place for the remaining £15,000.

I've just been told it is legal to do this and HMRC would have no query but I dont agree.

Has anyone else ever prepared/signed a partial dividend like this?

Thanks

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By BKD
08th May 2013 10:08

Who told you?

Because as far as I am aware it is not possible to wiave entitlement to only part of a dividend. Thinking about the practicalities, the waiver has to be in place before the dividend is declared. To partially waive a dividend one would then need to know how much that dividend was. Of course, one may be aware of discussions about the proposed dividend amount before it is formally declared, and submit a waiver on that basis. Sounds a bit risky, though.

Back to the question, though, and I too would be interested to hear if it is legally possible, if not particularly practical, to waive part of a dividend.

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We aren't told how many shares there are

It's certainly possible to waive on some, but not all, of your shares.

So if there are 10 shares held 50:50, shareholder 2 could waive entitlement in respect of 3 of the shares to achieve the desired result.

Do the shareholders just have one share each?

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Agreed that you can waive the entirety of the dividend  due on some of your shares and receive it in full on your others.  But you can't waive, say, half the dividend due on any given share. 

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08th May 2013 10:34

I've come across an example where the shareholders only have 1 share each. So from what your saying, this would be illegal?

However, in your example where there is more than 1 share, a "partial" dividend waiver on some of the shares is legit as long as the timing is correct?

Would HMRC not see this as tax avoidance if you are trying to avoid the HR band by choosing to waive some of your dividends on some of the shares you own but not the others? 

Maybe I'm being too particular and HMRC never really pick up on this in practice, but would be good to know.

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Heaven help us

Lynsey Stewart wrote:

Would HMRC not see this as tax avoidance if you are trying to avoid the HR band by choosing to waive some of your dividends on some of the shares you own but not the others? 

Heaven help us if this ever becomes  an issue.  If that ever happens all retired persons will be avoiding tax on the salaries that they would have earned if they had not retired.  Owners of investment properties who do not sell their properties but retain them will have avoided tax on the gains they would have made if they had sold them.

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By BKD
08th May 2013 10:59

HMRC's view - settlements

Lynsey Stewart wrote:

Would HMRC not see this as tax avoidance if you are trying to avoid the HR band by choosing to waive some of your dividends on some of the shares you own but not the others? 

Only if the waiver of the dividend results in others receiving more than they could have received in the absence of waivers. Have a look HERE

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08th May 2013 10:37

Another thought, hands up who back dates dividends? Do you think this is standard practice?

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08th May 2013 10:53

Thanks for the advice

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Further ruminations

Can I change my answer?

Imagine I have only got one share, and I don't want a dividend of any more than £10,000.

I don't know whether or not a dividend will be declared, and, if a dividend is declared,  I don't know whether it will be £1 per share or £100,000 per share.

If it's £10,000 or less, I want it all, but I don't want more than £10,000.

Can I not waive any dividend that might be declared on my 1 share to the extent that it exceeds £10,000?

On the backdating. Don't do it. Backdating a dividend waiver is particularly bad, because it has to be done by deed, and a deed is a legal document. Falsifying a legal document is fraud.

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08th May 2013 11:49

One share? Two dividends

The way round the problem is for TWO dividends to be declared, one of which is set to give the amount you intend to waive, the second is the amount you wish to take.  Then you waive the entitlement to the first.

Backdating a dividend should not happen but I do know some who do.  Backdating a waiver is fraud if it creates a pecuniary advantage.

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08th May 2013 13:03

A little bit of ethics

I know i'm going off track here, but what if you were preparing a SAR and found that the legals weren't correct or partial dividend was taken on 1 share.

Would you go ahead and prepare it based on what the client has taken out as a dividend and basically ignore whats gone on previously but point out to the client going forward this is incorrect.

I would imagine documentation of this is vital to keep myself right.

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