A recent Tribunal decision has considered the tax position for dividend waivers in favour of shareholders’ wives. The tribunal found in favour of HMRC, agreeing that the waivers were a settlement for income tax purposes, with the income treated as that of the taxpayers and so subject to tax at a higher rate.
The key factors were that the arrangements continued over a number of years and that the company had insufficient distributable reserves to pay the dividends declared unless the waivers were enacted.