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HMRC internal manual

Trusts, Settlements and Estates Manual

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HM Revenue & Customs
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Settlements legislation: about dividend waivers

Where a close company declares a dividend and one or more of the shareholders waives the dividend in circumstances where other shareholders may benefit, there may be an arrangement where the settlements legislation could apply.

In such cases, we argue that the person making the waiver has indirectly provided funds for an ‘arrangement’ or ‘settlement’ by giving up a sum to which he or she is, or may become, entitled.

The bounty will be represented by the enhanced part of the dividend that the non-waiving shareholders received.

Such a dividend waiver is a settlement of income and where the person benefiting under the arrangement is a spouse or civil partner the settlor will have retained an interest and ITTOIA/S624 will apply. Where the person benefiting under the arrangement is a minor child of the settlor ITTOIA/S629 will apply (see TSEM4300).

Where the person benefiting under the arrangement is not a spouse, civil partner or minor child the settlements legislation will not apply unless there are arrangements under which the money will be paid, or used to benefit the settlor (or spouse etc).