Dividend Diversion Scheme – What Should You Do?

A heavily marketed tax planning scheme, which HMRC have now labelled a "dividend diversion scheme" has been widely publicised of late with many individuals now wondering if the scheme is viable. HMRC has recently published its view on the planning arrangements and we have provided our overview in this article.

What is a dividend diversion scheme?

HMRC consider that such a scheme is set up to avoid tax by allowing director shareholders to divert dividend income to their children by facilitating a transfer of shares in their company to them. The children can then receive dividends which, as an example, may be used to fund the child's school fees or other various expenses. An overview of how such a scheme often works is set out in a recently published piece of guidance by HMRC, informing taxpayers that these schemes are currently in the spotlight, as follows: