Changes in dividend taxation - April 1999

On 6 April 1999, changes were introduced to the way dividends are taxed. The following summarises the present position:

The dividend is paid net of the 10% "tax credit" shown on your dividend tax voucher.
For basic rate taxpayers, there is no additional tax liability.
For individuals liable to income tax at the higher rate, the tax credit can be set off against your liability, leaving you with a further 22.5% to pay on the gross dividend.
Individual non-taxpayers are no longer able to reclaim tax credits on their dividends.


	Non-taxpayers	10%, 20% and 22% taxpayers
Position before 6 April 1999
Dividend (net)	£80.00	£80.00	£80.00
Tax credit	£20.00	£20.00	£20.00
Gross dividend (= Taxable income)	£100.00	£100.00	£100.00
Tax credit reclaimed	£20.00	NIL	NIL
Additional tax due	NIL	NIL	£20.00
Total tax suffered	NIL	£20.00	£40.00
Net income	£100.00	£80.00	£60.00
Position from 6 April 1999
Dividend	£80.00	£80.00	£80.00
Tax credit	£8.89	£8.89	£8.89
Gross dividend (= Taxable income)	£88.89	£88.89	£88.89
Tax credit reclaimed	NIL	NIL	NIL
Additional tax due	NIL	NIL	£20.00
Total tax suffered	£8.89	£8.89	£28.89 *
Net income	£80.00	£80.00	£60.00

*The total tax of £28.89 on gross dividend of £88.89 equates to an effective rate of 32.5% for higher rate taxpayers.