In the UK, dividend waivers are a mechanism that allow a shareholder to give up their right to receive a dividend payment from a company. This can be done for a variety of reasons, such as, to reduce the company’s tax liability or to distribute profits in a more tax-efficient manner.
Waivers also mean that the company can use the funds that would have been paid as a dividend to the shareholder for other purposes, such as reinvesting in the business, paying down debt, or distributing dividends to other shareholders.
Dividend waivers are often used in family-owned businesses, where one or more family members may choose to waive their right to receive a dividend so that the funds can be used to support the growth of the business.
The tax treatment of dividend waivers in the UK depends on various factors, including the reason for the waiver and the terms of the agreement. Generally speaking, if a dividend waiver is made for tax planning purposes, it may be subject to anti-avoidance rules and may not be effective for tax purposes.
If a dividend waiver is made for genuine commercial reasons, such as to re-invest profits in the business, it may be considered valid for tax purposes. However, it is important to ensure that the terms of the waiver are properly documented and that the waiver is not used as a means of disguising an unlawful distribution of profits.
The Robson Laidler tax team therefore recommend that companies avoid using dividend waivers for tax planning purposes. An alternative to dividend waivers is to use alphabet shares instead. Alphabet shares allow a company to issue different classes of shares, which can have differing voting rights, dividend rights, or other provisions. Alphabet shares are particularly useful for smaller or family-owned businesses due to their flexibility.
If you would like to discuss alphabet shares with us, or dividend waivers then please contact our tax advisory team: email@example.com