Dividend Waiver

[northernladuk]

I would argue that alphabet shares are a better idea than using dividend waivers, mind you throwing money into a bonfire and burning it is better than using a dividend waiver.

Isn't that kinda like having two fingers chopped off is better than your whole hand.

Using alphabet shares, particularly when all the OP wants to use them for us to artificially minimise his tax liability isn't a great idea at all IMO.

[Lance]

here's a thought.
Pay dividends as normal.
As the wife is below the higher rate, and the OP is above the higher rate the tax due is still better than all at the higher rate.

EG. £20k issued
£10k taxed at 7.5%, and £10k taxed at 32.5% is a total tax of £4k. So 20% of the total dividend.

[eek]

And before you ask.... No, changing your wife's holding every year to suit whatever you want to maximise is also a bad idea. And no, giving her alphabet shares insn't a good idea either.

I would argue that alphabet shares are a better idea than using dividend waivers, mind you throwing money into a bonfire and burning it is better than using a dividend waiver.

[northernladuk]

And before you ask.... No, changing your wife's holding every year to suit whatever you want to maximise is also a bad idea. And no, giving her alphabet shares insn't a good idea either.

[TheCyclingProgrammer]

The problem with waivers is that the act of waiving a dividend can create a settlement in its own right, separate the settlement of shares in the first place.

Whilst the settlement of shares can be dealt with using the spouse exemption as per Arctic, the potential settlement created by waiving dividends cannot as it is treated as a gift of income and therefore does not meet the criteria of the spouse exemption.

This has been tested by HMRC and they have won on this point. It doesn’t mean all waivers are a settlement but in the scenario you describe HMRC would likely treat it as such. Have a read of this:

TSEM4225 - Trusts, Settlements and Estates Manual - HMRC internal manual - GOV.UK

[northernladuk]

'valid commercial reason' ?

Certainly not aggressive tax avoidance. Don't do it.

How is your personal tax situation a commercial issue? You've got to think a little bit.

Just skim reading but it appears this chap was in a very similar situation as you. He really took the piss with his wife having 1 share and paid her a 27k dividend. He messed up because it still as to be the same percentage as the share holding so he needed millions to be waived which he didn't have in the bank. I'm not very good at legal speak but that doesn't seem to be the crux, it's the distribution to his wife using a waiver. The statement below doesn't discuss the problem with the amount paid. It does however directly deal with issue of waiver for him and extra money to his wife which is exactly your situation. The only bit you are interested in is Mr Buck lost.

Buck v Revenue & Customs [2008] UKSPC SPC00716 (23 October 2008)

HMRC contend that both Mr Buck's dividend waivers and the consequent payment of dividends to Mrs Buck constituted an "arrangement" for the purposes of section 660G and therefore a "settlement" within section 660A(1) of which Mr Buck was the settlor. The settlements, not constituting "outright gifts" within the words of exception in section 660A(6), were not covered by the decision of the House of Lords in Jones v Garnett [2007] UK HL 35 and [2007] STC 1536: the income represented by the waived dividends was therefore to be treated as Mr Buck's for tax purposes.

That's just one example and even if I do have it wrong and it's not exactly like your situation it's still a huuuuuge warning flag that you don't piss about with waivers.

[GhostofTarbera]

Your new contract is outside IR35 right ?


Sent from my iPhone using Contractor UK Forum

[eek]

Hi - After setting up a new Ltd for purposes of a contract which will last from October 2020 to April 2021 (6 Months), I made my wife a 50% shareholder and director. The usual thing - she has an unused tax allowance, I have already earned enough in 6 months to be in 40% tax. Therefore I would ideally like to pay as much as possible to wife over the last 6 months, and take zero myself. She does any bookkeeping or admin. Seems effective for me to pay her a dividend and do a waiver for myself - but reading through the legaleeze it seems that I have to have a 'valid commercial reason' to waive my (ordinary share, pro-rata) dividend. What classifies as a 'valid commercial reason' ? - I can't seem to find anything on this. How about ' I need to buy furniture, computers, car, etc. blah blah' - will that cut it with HMRC ?? - or will I have to issue the same pro-rata dividend to both of us ?? - same for the salary - can I pay wife, say, 50k in next 6 months to keep below 20%, and taking sweet nothing personally ?? - seems that the well-known Arctic Systems case set a president, but not for dividend waivers....

Cheers!!!!

There are precedents for dividend waivers but the precedents are ones you really won't like - basically don't do it.

I will actually see if I can find the tribunals (used to set the precedents) as the ones I remember are outright stupid - like waivering 97% of the shares and just paying the 3% shareholder a lot of money - which meant that the profits required for the dividend given was way higher than the entire historic profit of the company.

And there was a solution but it's not practical now - the best plan would have been to have 2 classes of shares with the Mrs having a different class due to her different risk profile (HMRC and some accountants dislike it but provided you use it in most circumstances to reduce what the Mrs receives its possible to argue its fair and legitimate).

[MeIsMark]

Hi - After setting up a new Ltd for purposes of a contract which will last from October 2020 to April 2021 (6 Months), I made my wife a 50% shareholder and director. The usual thing - she has an unused tax allowance, I have already earned enough in 6 months to be in 40% tax. Therefore I would ideally like to pay as much as possible to wife over the last 6 months, and take zero myself. She does any bookkeeping or admin. Seems effective for me to pay her a dividend and do a waiver for myself - but reading through the legaleeze it seems that I have to have a 'valid commercial reason' to waive my (ordinary share, pro-rata) dividend. What classifies as a 'valid commercial reason' ? - I can't seem to find anything on this. How about ' I need to buy furniture, computers, car, etc. blah blah' - will that cut it with HMRC ?? - or will I have to issue the same pro-rata dividend to both of us ?? - same for the salary - can I pay wife, say, 50k in next 6 months to keep below 20%, and taking sweet nothing personally ?? - seems that the well-known Arctic Systems case set a president, but not for dividend waivers....

Cheers!!!!