Tax Guide · Updated July 2026
Dividend Waivers: How They Work and HMRC’s Settlements Rules 2026/27
A dividend waiver lets a shareholder give up their right to a dividend so the remaining profit is distributed only to other shareholders — often used in family companies to direct income to a lower-earning spouse. Done incorrectly, it can trigger HMRC’s settlements legislation and tax the waived income back on the person who gave it up. Here is how to do it properly for 2026/27.
What a Dividend Waiver Is
A dividend waiver is a formal, legally binding decision by a shareholder to give up their entitlement to some or all of a dividend before it is declared or paid, so that the company’s available profit is instead distributed among the remaining shareholders in larger amounts than their shareholding alone would produce.
They are most commonly used in small family companies where one shareholder (often a working director) waives their dividend so a spouse or family member on a lower income, and with unused Personal Allowance or basic-rate band, receives more of the distributable profit at a lower marginal tax rate.
The Formalities: A Valid Deed of Waiver
To be effective, a waiver must generally be made by a deed — a formal document, signed, witnessed and dated — before the dividend is declared (an interim dividend) or before the right to receive it arises (a final dividend approved at a general meeting). A waiver made after the dividend has already been declared is far more vulnerable to challenge.
The company’s articles of association and board minutes should be consistent with the waiver, and there should be a genuine commercial or personal rationale recorded, rather than the waiver appearing purely as a mechanical tax-saving device repeated identically every year.
Why HMRC Scrutinises Waivers: The Settlements Legislation
HMRC can apply the settlements legislation to reallocate income back to the person who gave it up if the arrangement is, in substance, a "bounteous" gift of income while retaining an interest, rather than an outright and unconditional gift of the underlying shares themselves.
The classic risk scenario is a company with insufficient distributable profit to pay the same rate of dividend to all shareholders without waivers, where a waiver by one shareholder is the only way to enable a larger payment to another — HMRC has successfully challenged arrangements structured this way.
Reducing the Risk
Ensure the company has genuinely sufficient distributable reserves to pay the same dividend rate to every shareholder without any waiver — if it could not afford to do so, a waiver used to divert profit to another shareholder is high risk.
Keep clear documentation: board minutes explaining the commercial reason, a properly executed deed made before the dividend right arises, and consistency between what is waived and the company’s actual financial position. Professional advice is strongly recommended before relying on a waiver for meaningful sums.