Basically the current situation is that the first £30,000 of a payment which is paid in connection with the termination of employment is tax free, as long as it is not otherwise taxable as earnings. It sounds simple but can be complicated, here is a government example
The Office of Tax Simplication are currently consulting (until 16th October 2015) on changing the rules one solution is to make it more like redundancy payments, take a look at these examples
There will also be some anti avoidance rules that if you are re-engaged within 12 months in similar job with the same company the payments previously made would become subject to tax and NI.
It looks like we are in for some major changes, its not too late for you to have your say, click on this link
The s660 rules (or settlements legislation) have been around since the 1930s.
The rules stop you passing income to someone else in the family, or giving income or assets to someone else in an effort to reduce your overall tax bill. This is called a “settlement”, and the aim of the legislation is to stop people settling their income on another person who pays tax at a lower rate. (Contractor UK)
There are some interesting cases where business owners have tried to pass shares to their children unsuccessfully
Copeman v Coleman  22 TC 594
A company had been formed to take over the taxpayer’s business. He held the shares equally with his wife. Later the company created a class of preference shares of £200 each carrying a fixed preferential dividend, the right to vote if such dividend were in arrear for three years or more and the right in a winding up to a return of capital paid up. Some of the shares were taken up by his children on which they paid £10 per share. Dividends substantially in excess of the amounts paid up were then declared and the taxpayer, on behalf of his children claimed repayment of the tax paid in respect of the dividend to the extent of that child’s personal allowance. (http://swarb.co.uk/copeman-v-coleman-1939/)
Crossland v Hawkins  39 TC 493
The taxpayer, a well known film actor, agreed to work through a company for three years being paid £50 per week. The shares were transferred to his wife and accountant. His father in law set up a £100 settlement for the benefit of his children of which his wife and accountant were the trustees. The fund was used to subscribe for the remaining 98 shares. He appeared in a film for which the company was paid £25,000. The company paid a dividend which was applied by the trustees for the benefit of the children. Jack Hawkins then applied on behalf of his children for a repayment of tax to give effect to their personal allowances. The repayment claim was rejected on the grounds that the whole arrangement was a settlement of which Jack Hawkins was a settlor because he had provided the funds for it. (http://swarb.co.uk/crossland-v-hawkins-ca-1961/)
Butler v. Wildin  STC 22
A company was formed by two brothers who acted as unpaid directors. Shares in the company were initially held by their infant children, which were paid out of gifts from their grandparents. The company acquired a development site using a bank loan, which was guaranteed by the brothers. The company subsequently became profitable, and dividends were subsequently paid to the infant shareholders. The High Court held that the children’s investment of ‘trifling sums’ in the shares and the parent’s provision of services to the company constituted an arrangement. An element of bounty was given by the parents in the free provision of their skill and services, and by adopting any financial risk in the company’s venture. Dividends paid to those children born before the arrangements were made (but not dividends in respect of shares transferred to children born afterwards, as there was no apparent arrangement to benefit future children) were taxable on the parents, under what is now section 660B.(http://www.taxationweb.co.uk/tax-articles/business-tax/is-that-settled-then.html)
Which brings us to the new case of Jeremy Vine
Mr Vine appears to have been using his ten-year-old daughter Martha to avoid tax payments.
The presenter of the Jeremy Vine Show and the TV quiz Eggheads, has been funnelling cash through a limited company, Jelly Vine Productions, of which she is a shareholder.
Jelly Vine Productions had almost £810,000 in cash on its books in 2013 – the last accounts available, and £1million in 2012.
There is a common mis-conception that if you give something away it doesn’t have any tax implications, unfortunately, that isn’t the case.
When you give away shares you usually work out your gain or loss as if you’ve sold the shares at market value. The market value is the price you would expect to receive if you sold them on the open market. This also applies if you sell them for less than their full value.
There are some exceptions:
if you can claim Gift Hold-Over Relief
if you give the shares to your husband, wife or civil partner
if you give shares to a registered charity
To qualify for Gift Hold-Over Relief, the shares must be in a trading company, or the holding company of a trading group, and one of the following must apply:
the shares aren’t listed on a recognised stock exchange
you’ve at least 5 per cent of the voting rights in the company
You don’t pay Capital Gains Tax when you give (or otherwise dispose of) shares, to your husband, wife or civil partner, providing both of the following apply:
you’ve lived together for any part of the tax year in which you made the gift
the gift isn’t ‘trading stock’ (trading goods bought for resale)
You won’t have to pay Capital Gains Tax on a gift of shares to a registered UK charity.
Dividends are paid at the same rate for each category of share in accordance with the number of shareholdings held
CTA10/S1168(1) specifies that dividends are treated as paid for the purposes of the Corporation Tax Acts ‘on the date when they become due and payable’
Never be tempted to backdate board minutes and dividend vouchers, as the documents will be legally void and can constitute a criminal offence.
There are times when, for good reasons, a Shareholder may wish to waive their right to a dividend, but HMRC are well aware that often waiving a dividend can have tax implications (bounty and settlement) and they have the following advice in TSEM4225
Not all dividend waivers are vulnerable to challenge. Where a company with few shareholders declares a dividend when one or more of the shareholders has waived their right to a dividend in circumstances where other shareholders may benefit, it is possible the Settlements legislation could apply. You should look out for the following factors, which would indicate that the Settlements legislation is likely to apply.
The level of retained profits, including the retained profits of subsidiary companies, is insufficient to allow the same rate of dividend to be paid on all issued share capital.
Although there are sufficient retained profits to pay the same rate of dividend per share for the year in question, there has been a succession of waivers over several years where the total dividends payable in the absence of the waivers exceed accumulated realised profits.
There is any other evidence, which suggests that the same rate would not have been paid on all the issued shares in the absence of the waiver.
The non-waiving shareholders are persons whom the waiving shareholder can reasonably be regarded as wishing to benefit by the waiver.
The non-waiving shareholder would pay less tax on the dividend than the waiving shareholder.
So if you are thinking of waiving dividends, bare the following in mind:
A formal Deed of Waiver is required, the Deed will say that the Dividend is Irrevocably Waived, it must be dated before the right to dividend arises, it must be signed and witnessed and filed with the company statutory records
You should have a good commercial reason for the Waiver which could be to retain funds for a specific purpose and this could be stated in the Deed
Don’t make a habit of waiving dividends as it will increase the risk of questions from HMRC
Don’t give inducements to encourage Dividend Waivers