Summary
Company dividends paid to the taxpayers’ wives following dividend waivers by the taxpayers were held to be income arising under a settlement, and were therefore assessable on the taxpayers for income tax purposes.
Background
HMRC opened an enquiry into the 2009/10 tax returns of two taxpayers who were shareholders in the same trading company. Both shareholders held 40% of the ordinary shares. Their wives each held 10% of the shares.
During 2009/10, the shareholders received dividends from the company, of broadly similar amounts. This result was achieved by the taxpayers waiving their entitlement to an interim dividend, and their wives waiving entitlement to a second interim dividend. Similar exercises had been undertaken in earlier tax years. The taxpayers’ wives did not file tax returns, as they were liable to tax at the basic rate only.
