Waivers were unjustified

The taxpayers were directors and shareholders of a company. Their wives became shareholders in 2001. Each of the taxpayers held 40% of shares and each wife had 10%.

The business declared interim dividends in April 2009 for the accounting period ended 31 March 2010. The taxpayers signed deeds on the same date waiving their entitlement to the dividend; the each wife received an enhanced dividend.

HMRC said the transaction constituted a settlement in favour of the wives under ITTOIA 2005 s 620. The women were only basic-rate taxpayers and the arrangement was in effect tax avoidance.

The Revenue issued discovery assessments on the basis the dividend waivers were a diversion of income from the directors to their wives.

The First-tier Tribunal said “on the balance of probabilities” the intention behind the waiver was to reduce liability to income tax.

The taxpayers argued that the waiver...