Dividend waivers gone wrong!

FTT - P Donavan and Mr P McLaren v HMRC [2014] TC03188

This is another settlement case where the imprudent use of husband-wife dividend waivers went squarely wrong. The dividend waivers were in fact executed by deed for just the day (one day!) when the dividends were voted and paid. We’re not surprised that HMRC’s arguments that it was indeed a settlement prevailed before the First-tier Tribunal. Our blog on dividend waivers clearly explains the provisions of law and the precautions to be taken. Part 5 ITTOIA 2005 includes the unpopular settlement provisions whereby a settlor is taxable on any income arising from an arrangement where he gives away property to the spouse whilst retaining a beneficial interest in the property or income arising from it.

In this case the husbands executed dividend waivers in favour of the their wives (all shareholders) and paid higher dividends to their wives than what they were entitled to, so the wives’ personal allowances could be made best use of. In the process disproportionate dividends were received by the wives by virtue of the dividends waived, which should actually have been retained within the business.

We’re not at all surprised by this decision.

Tax Partners