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Dividend waivers

Dividend waivers

HMRC have some guidance on waivers see below:-

I have a few commetns/queries on this:-

Point 1 has been well documented in previous comments

Point 2 However, seems to indicate that where there are continuous waivers, then a cumulative test is done. If I'm reading this right, then the 'waived' element of the dividend can never be distributed, even in future periods, as this would be seen as 'income shifting'. (Mathematically, this could be the case.) So if the waived element is left in reserves, and it can be proved that this is the case, is this a defence against HMRC applying settlements legisaltion. Even in the event of continuous waivers?

Also, if the waived element was distributed say 10 years later, how could HMRC prove this, as tax return etc information is legally able to be destroyed, long before the 10years is up?

Point 5 Under independant taxation how would any shareholder know if another shareholder would benefit? As there is no legal obligation to disclose your tax affairs to another individual! Including husband and wife. How do HMRC get round that one?

I've waffled on this but it would be interesting to know the answer.


TSEM4225 - Dividend waiver - when Settlements legislation may apply

Not all dividend waivers are vulnerable to challenge. Where a company with few shareholders declares a dividend when one or more of the shareholders has waived their right to a dividend in circumstances where other shareholders may benefit, it is possible the Settlements legislation could apply. You should look out for the following factors, which would indicate that the Settlements legislation is likely to apply.

1.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.

2.Although there are sufficient retained profits to pay the same rate of dividend per share for the year in question, there has been a succession of waivers over several years where the total dividends payable in the absence of the waivers exceed accumulated realised profits.

3.There is any other evidence, which suggests that the same rate would not have been paid on all the issued shares in the absence of the waiver.

4.The non-waiving shareholders are persons whom the waiving shareholder can reasonably be regarded as wishing to benefit by the waiver.

5.The non-waiving shareholder would pay less tax on the dividend than the waiving shareholder



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09th Mar 2012 12:51

My article on Dividend Waivers

I’m not sure whether you have read my article on this subject - ‘Dividend Waivers’ - Get the details right'; if not the text confirms that an 'element of ‘bounty’ is required for HMRC to be interested as a settlement.

A deed of waiver is required, which must be signed, dated, witnessed and lodged with the company. As you say, you legally only have to keep business records for a set number of years but you don’t have to destroy; in such a case as a dividend waiver as it is unusual it would be best to keep. 

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24th Jul 2012 21:50

Dividend Waivers

I read you article Dividend Waivers’ - Get the details right' with interest.

You say that: "A deed of waiver is required, which must be signed, dated, witnessed and lodged with the company".

What is your authority for this statement? Is there HMRC guidance to this effect? Is there a decided case on this point? Is it in an Act or Statutory Instrument?

It is difficult to tell a client that this is a requirement simply because lots of web sites say so!

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