CTM15270 - Distributions: general: dividend waivers and application of the settlements legislation

ITTOIA/S624

Charity, Assets & Residence, Trusts Head Office, Bootle would like to see certain cases where a person has waived his right to a dividend in order that another shareholder may benefit. In such cases, we argue that the person making the waiver has indirectly provided funds for an ‘arrangement’ or ‘settlement’, and that the Settlements legislation found at Chapter 5 Part 5 ITTOIA is in point.

The legislation at Chapter 5 Part 5 ITTOIA only applies where the arrangement contains an element of bounty. In the case of dividend waivers, the person making the waiver will be giving up a sum to which he or she is, or may become, entitled, and the bounty will be represented by the enhanced part of the dividend received by the non-waiving shareholders.

Not all dividend waivers are vulnerable to challenge, and there is guidance at TSEM4225 on the factors that would indicate that the settlements legislation is likely to apply.

Unless the company's share structure involves preference shares, in which case advice should be sought from Charity, Assets & Residence, Trusts Head Office, Bootle before submitting the case, you should submit a case showing any of the factors listed at TSEM4225 to Charity, Assets & Residence, Trusts Head Office, Edinburgh for advice.