For a person who has no need of the income from a family company, a dividend waiver, which allows other shareholders to receive dividends but not the person who has executed the waiver, can be a useful device.

However, the use of dividend waivers can present difficulties unless the process is correctly managed and the potential issues are given full consideration. They should never be put in place without professional advice.

One little-known aspect of creating dividend waivers is that because they are a ‘one-sided’ agreement (there is no consideration for the waiver), to be valid they must be executed as a deed. However, the drafting, preparation and execution of a deed is a ‘reserved activity’ under the Legal Services Act 2007 and whilst solicitors are authorised to carry out this work, many professional tax and accounting advisors are not.

The Chartered Institute of Taxation has recently advised its members that if they carry on such activity they must be authorised to do so under the Act, unless they are exempt.