Special Commissioner – Dividend Waiver case
This case heard by the Special Commissioner concerned an arrangement whereby a husband and wife had a jointly owned company. However, the husband held 9,999 shares and his wife held only 1 share. Thehusband waived his right to a divided which enabled the company to pay an increased dividend to his wife. HMRC argued that this arrangement constituted an ‘"arrangement" for the purposes of the ‘settlement’ provisions which were addressed in the ‘test’ case of Jones v Garnett.
The payments in this case related to dividends of £35k in 1999 paid out of reserves of £46k and a similar arrangement in 2000. Without the dividend waivers the company would have needed approximately £300m in reserves to make such payments.
The Commissioner noted that the legislation excludes an "outright gift" of property from one spouse to the other from the scope of the ‘settlement’ provisions. That exclusion does not however apply where the property given is wholly or substantially a right to income. In this case each dividend waiver was not an "outright gift" of the shares in question, merely a waiver of any dividend that might be declared in respect of the shares. The appeal was therefore dismissed.