The move to cut tax credits on dividends from 25 to 20 per cent will have no effect on basic rate taxpayers whose liability for tax on dividends will be cut to 20 per cent.
Shareholders who pay tax at 20 per cent will no longer have to reclaim the 5p difference between the tax credit and their liability. Non-taxpayers entitled to reclaim tax will get back 20 rather than 25 per cent.
But higher-rate taxpayers have to pay 40 per cent on the gross equivalent of the dividends - net dividend plus tax credit. As it is likely that net dividend payments by companies will be unaffected the shareholder will have to pay extra tax. Pension funds that are exempt from tax will only be able to reclaim 20 per cent on their dividend income and this may hurt pension fund returns.
Personal Equity Plans will also be hit.
The Chancellor has put an end to higher-rate taxpayers taking a guaranteed tax-free return of up to 30 per cent a year or more through an investment in a Business Expansion Scheme.
Most of the pounds 700m- pounds 800m of BES investments made in the 1992/3 tax year has been taken by schemes that allow many investors to borrow more money than they invested after as little as six months.Reuse content