Dividend Waivers

19th Apr 19

What is a dividend waiver?

A waiver is where one or more shareholders decide to waive their rights to be paid a dividend. Every shareholder is entitled to be paid in relation to the number of shares they hold.

To avoid the distribution being challenged by HMRC a number of procedures should be followed:

  1. Ensure the Deed of Waiver is formally executed and signed by shareholders who would be entitled to receive the share income.
  2. Prior to the right to receive a dividend arises, ensure the waiver is in place.
  3. A waiver should only be used for genuine commercial reasons.
  4. A waiver must not create a situation where the dividend can be seen as a ‘settlement’ and therefore used for tax avoidance.

Dividend waivers are only effective if executed by deed because there is no consideration to support a contract.

Recent CIOT guidance explains that the drafting, preparation, and execution of deeds is a ‘reserved activity’ under the Legal Services Act 2007.  This can only be carried out by an authorised or exempt person.  As a result, all waivers/deeds must be drafted by lawyers.