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HMRC’s latest avoidance spotlight draws attention to a dividend diversion scheme used to fund the cost of education fees – as recently highlighted by Dan Neidle.
The spotlight explains that the arrangements are aimed at individuals who are the directors and main shareholders of a company and that they work broadly as follows:
- a company issues a new class of shares which usually entitles the owner of the shares to certain dividend and voting rights;
- person A usually a grandparent or sibling of the company owner purchases the new shares for an amount significantly below market value and gifts the shares to a trust or declares a trust over the shares for the benefit of the company owner’s children;
- person A or the company owners vote for substantial dividend payments in respect of the new class of shares and this is paid to the...
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