Who gets the dividend when shares are sold

Q: How might this work in practice?

Illustration only. Tom agrees to sell his 100 shares in a private company to Ana. They sign the stock transfer form on 1 March. The duty is paid and HMRC's confirmation arrives on 20 March, and the directors register Ana on 25 March. Meanwhile the board decides on 10 March to pay an interim dividend of £20 per share on 31 March, without setting a record date. Under article 30(4), the holding is fixed on 10 March, when Tom was still the registered holder. The company pays the £2,000 to Tom on 31 March, even though Ana is on the register by then. Tom is taxed on the £2,000. If the sale agreement says dividends declared after signing belong to Ana, Tom must account to her under the contract. Had the board's decision named 31 March as the record date, Ana would have been paid.

The company pays a dividend to whoever is entered in its register of members as the holder of the shares on the record date. Under the model articles, unless the resolution or the terms of the shares say otherwise, the record date is the date of the shareholders’ resolution or the directors’ decision to declare or pay the dividend, and a seller remains the holder until the buyer’s name is entered in the register. If buyer and seller want a different result, they have to agree it between themselves, usually through the price or the sale agreement.

Tax investigation insurance from £108.75 a year (£9.06 a month).Pays up to £100,000 of your accountant's fees if HMRC opens an enquiry. No excess. Buy online in a few minutes.

See my price in 2 questions How the cover works Accountant? Offer cover to your clients or call 01795 841 310

What decides who the company pays?

The register of members, not the sale contract. Section 112 of the Companies Act 2006 says a person who agrees to become a member and whose name is entered in the register of members is a member. The model articles for private companies define the “holder” of shares as the person whose name is entered in the register of members, and article 31(2) makes the holder the “distribution recipient” to whom a dividend is paid. Where shares are held jointly, the recipient is whichever joint holder is named first in the register; where the holder has died or become bankrupt, it is the transmittee.

The company is not concerned with arrangements behind the register. Section 126 provides that no notice of any trust, express, implied or constructive, is to be entered on the register of members of a company registered in England and Wales or Northern Ireland. So a buyer who has signed a contract and paid the price, but is not yet on the register, has no claim against the company for a dividend paid to the registered seller. See statutory registers for what the register must contain.

What is the record date under the model articles?

Article 30(4) of the model articles for private companies says that, unless the shareholders’ resolution to declare or the directors’ decision to pay a dividend, or the terms on which the shares were issued, specify otherwise, the dividend must be paid by reference to each shareholder’s holding on the date of that resolution or decision. Article 70(4) of the model articles for public companies is in the same terms.

Three consequences follow:

for a final dividend, the holding is fixed on the date the shareholders declare it, even if the resolution sets a later payment date, so a sale registered between declaration and payment does not move the dividend to the buyer;
for an interim dividend, the holding is fixed on the date of the board decision;
the resolution or board decision can choose a different record date, which is the simplest way to deal with a sale that is about to complete.

Companies with their own articles may have different wording, so check them first.

Worried about an HMRC check? Tax investigation insurance pays your accountant’s fees if HMRC opens an enquiry or compliance check. Solar Protect cover pays up to £100,000 with no excess. It never pays tax, interest or penalties.

From £108.75 a year (£9.06 a month) for individuals, £117.57 for sole traders and £207.50 for companies and partnerships, including IPT and the £20 admin fee.

See my price in 2 questions or call 01795 841 310.

★★★★★ Rated 4.9 out of 5 on Trustpilot from over 160 reviews

When does the buyer become the holder?

Only when the register is updated. Article 26(4) of the model articles says the transferor remains the holder of a share until the transferee’s name is entered in the register of members. The steps in between are:

Instrument of transfer. Section 770 prevents the company registering a transfer unless a proper instrument of transfer has been delivered to it, subject to limited exceptions.
Stamp duty. HMRC’s guidance says a stock transfer form must be sent to HMRC and the duty paid within 30 days of the form being signed and dated. HMRC then sends a letter confirming the form has been duly stamped so that the registrar may register the new owner. A certificate on the form is used instead where the consideration is £1,000 or less and the transfer is not part of a larger transaction. See how to get a stock transfer form stamped.
Registration. Under section 771 the company must register the transfer, or give notice of refusal with reasons, as soon as practicable and in any event within two months after it is lodged. Under the model articles the directors may refuse to register a transfer; see directors refusing a share transfer.

In a private company sale, completion and registration often happen at the same board meeting, but there can be a gap of days or weeks, and a dividend decided in that gap goes to the seller.

Who pays tax on the dividend?

Section 383 of the Income Tax (Trading and Other Income) Act 2005 charges income tax on dividends of a UK resident company, and section 385 makes liable the person to whom the distribution is made, or the person receiving or entitled to it. In the ordinary case that is the registered holder who receives the payment. Section 384 charges it in the tax year in which it is paid.

If the seller later passes the money to the buyer under the sale agreement, that is part of the bargain between them. HMRC’s view at CTM15205 is that what a recipient does with a dividend after payment is no more than an assignment or transfer of income. Where large sums are involved, take advice on how the adjustment is treated for both parties.

How do buyers and sellers usually deal with a dividend near completion?

The company law rules are fixed, so the commercial outcome is managed around them:

Dividend before completion. The company pays out profits to the seller before the sale, and the price reflects the lower value. The tax comparison is in pre sale dividends before selling a company.
Price adjustment. If a dividend is declared before the buyer is registered, the agreement can require the seller to account to the buyer, or reduce the price by the same amount.
Later record date. The resolution can fix a record date after the expected registration so that the buyer receives it.
Waiver by the seller. HMRC’s guidance says a waiver must be in place before the right arises: for a final dividend, before it is declared, and for an interim, before it is paid.

How might this work in practice?

Illustration only. Tom agrees to sell his 100 shares in a private company to Ana. They sign the stock transfer form on 1 March. The duty is paid and HMRC’s confirmation arrives on 20 March, and the directors register Ana on 25 March. Meanwhile the board decides on 10 March to pay an interim dividend of £20 per share on 31 March, without setting a record date.

Under article 30(4), the holding is fixed on 10 March, when Tom was still the registered holder.
The company pays the £2,000 to Tom on 31 March, even though Ana is on the register by then.
Tom is taxed on the £2,000. If the sale agreement says dividends declared after signing belong to Ana, Tom must account to her under the contract.
Had the board’s decision named 31 March as the record date, Ana would have been paid.

What mistakes come up most often?

Paying the buyer because the sale has completed, when the seller is still on the register at the record date.
Paying by reference to holdings on the payment date rather than the date of the resolution or decision.
Leaving the register out of date for months after a sale; correcting it is covered in rectifying the register of members.
Assuming the sale agreement binds the company. It binds only the buyer and the seller.
Forgetting that on death the transmittee, not the estate’s beneficiaries, receives dividends until the shares are transferred; see transmission of shares on death.

Company directors can protect the business against the cost of an HMRC check with tax investigation insurance, which pays up to £100,000 of accountant’s fees with Solar Protect. Read how our cover works or get a quote.

Related Accountapedia entries

Sources

Reviewed by Christine Anderson, Broker, Solar Protect. Last reviewed 24 October 2026. Part of Accountapedia, the Solar Protect guide to UK tax and accounting. This page is general information, not personalised advice.