Dividend waiver.

Robj · May 2016

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 · May 2016

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 · May 2016

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 · May 2016

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.

Dividend waiver.

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