Dividend waiver.

Robj

Small Ltd. Company with 2 directors - Father (51shares) Son (49) shares. Son would like to withdraw dividend for property purchase. Father does not require funds at present and would prefer to leave funds in Co as a reserve, although not for any particular imminent expenditure. There is no problem with the amount of distributable profits as no dividend has been taken for a number of years. If a dividend waiver were to be put in place would this be likely to attract the interest of HMRC as a "settlement"? This situation is likely to occur again the future as the Father has considerable other income outside the Company.
Any advice much appreciated.

burg

Dividend waivers are always really difficult and in my experience best avoided. It may be better to create a different non-equity share class for such a purpose.

KernowAccountant

I disagree with Burg.

Assuming 'son' is not a minor, I have no issue whatsoever with a waiver in these circumstances.

Providing 'father' does not have an interest in son's dividend, there will not be a settlement as confirmed in HMRC manual TSEM4220.

Under s.15 IHTA 1984 a waiver for a period not exceeding 12 months will not constitute a transfer of value for IHT purposes.

Providing there are sufficient distributable reserves to pay the waived dividend there will be no issues such as in Donovan & McLaren vs HMRC. In addition, there is a commercial purpose to the waiver; the retention of working capital.

I completely disagree with Burg that non-equity shares would be appropriate in these circumstances. If such shares confer wholly or mainly a right to income that is a settlement, see Jones vs Garnett.

Robj

Many thanks. I'll look up the cases mentioned. Wasn't keen on the idea of different classes of shares as son will eventually inherit Company and I feel that it would cause complications then.