Dividend waiver
A dividend waiver is a document produced by a sharelder to show that they have given up (waived) their right to one or more dividends that they would otherwise be entitled to. A waiver can be used in income tax and inheritance tax planning but it must be made as a deed or HMRC will not accept its validity.
The waiver deed
When a company pays a dividend, all the shareholders receive a cheque in proportion to their shareholding in the company. It’s a case of all or nothing. Plus, under present rules, anyone liable to the higher rate of tax suffers an additional income tax on dividends. In other words, if you are already a higher rate taxpayer the problem with taking an extra dividend is that you pay tax on it. Yet fellow shareholders may have no tax to pay. This is where dividend waivers come in.
They can therefore be used as a method of reducing the income a shareholder receives from the company. You cannot waive the dividend after you obtain the right to receive it. Use our Dividend Waiver agreement to achieve this.
One possible use of a dividend waiver would be to divert income to one or more of the other shareholders. However, HMRC clearly states in its manuals that it will look very closely at dividend waivers where the non-waiving shareholder would pay less tax on the dividend than the waiving shareholder. Therefore, it’s best to state in the deed of waiver that it has been made to allow the company to retain funds for a specific purpose. Also make sure the dividend declared per share times the total number of shares in issue before any waivers does not exceed the amount of the company’s distributable reserves.
A waiver of dividends within twelve months before any right to the dividend has accrued avoids a possible inheritance tax problem (s.15 Inheritance Tax Act 1984). This is another good reason for the period of 364 days mentioned on the waiver.
Related Topics
-
Should you use simplified expenses?
The flat rate expense you can claim for business journeys if you’re self-employed has increased to 55p per mile. Can you use simplified expenses for motoring costs and is it more tax efficient to do so?
-
HMRC targets smaller tax debts
HMRC is stepping up collection of lower‑value tax debts, signalling a firmer approach to long‑overdue liabilities while encouraging earlier engagement. Direct recovery from bank and building society accounts has been re‑introduced on a trial basis, alongside a government consultation on HMRC powers and tax administration. What are the key points to be aware of?
-
New digital process for NI refunds
HMRC has introduced an online service to claim a refund of Class 1 NI contributions but not everyone can use it. What can you do if you've paid too much NI?
This website uses both its own and third-party cookies to analyze our services and navigation on our website in order to improve its contents (analytical purposes: measure visits and sources of web traffic). The legal basis is the consent of the user, except in the case of basic cookies, which are essential to navigate this website.