Dividend Waivers in a Family Company: When HMRC Accepts Them

A dividend waiver is a formal deed in which a shareholder gives up their right to a dividend. It has to be signed and dated before the right to the dividend arises, so in practice before the dividend is declared. A letter after the event does not work.

HMRC's manual TSEM4220 treats a waiver as a possible settlement where the person waiving gives up income so other shareholders receive more. If the person who benefits is a spouse or civil partner, the extra dividend is taxed on the person who waived under ITTOIA 2005 section 624. For an unmarried child under 18, section 629 applies.

TSEM4225 lists the warning signs HMRC looks for:

• retained profits are not enough to pay the same rate of dividend on every share;
• repeated waivers over several years that reserves could not have covered on all shares;
• the people who benefit are ones the waiving shareholder would want to benefit; and
• they pay less tax on the dividend.

In TSEM4225 Example 12, Mrs H owns 80 shares and Mr H owns 20. The company makes a £25,000 profit, Mrs H waives, and a dividend of £1,000 per share gives Mr H £20,000. Paying that rate on all 100 shares would have needed £100,000, so HMRC attributes £16,000 of Mr H's dividend to Mrs H.

For 2026/27, dividends above the £500 dividend allowance are taxed at 10.75% (basic rate), 35.75% (higher rate) and 39.35% (additional rate), according to GOV.UK. If £10,000 shifted to a basic-rate spouse is attributed back to a higher-rate shareholder, that is about £2,500 of extra tax, plus interest and possibly penalties, assuming both dividend allowances are already used.

• Sign the deed of waiver before the dividend is declared, and keep it with the company records.
• Declare the dividend per share, not as a total.
• Check reserves could have paid the same rate on every share, counting earlier waivers. Our guide to illegal dividends explains the reserves test.
• Minute a genuine reason and avoid waiving every year.

For different dividends each year, separate share classes are often cleaner, though not automatically safe. See HMRC TSEM4225 Example 13 and what share classes to use for a family company.

Our dividend planning service checks distributable reserves and documents dividends so payments hold up under scrutiny. It is quoted in writing on scope before work starts. You can book a free intro call about our services, while technical tax advice on your own waiver is a paid consultation.