Tax credit

Shareholders receiving dividend income also receive a tax credit. Those taxed at the basic rate have no further tax to pay on their dividend income while those who pay income tax at the higher rate have to pay extra tax on their dividend income.

From 6th April 1999, there was a shake up in how tax credits work. Private shareholders when they receive their dividend cheque now receive, attached to it, a 10% tax credit.

The 10% tax credit -

If you're a non taxpayer, you won't be able to reclaim anything.

If you're a basic rate taxpayer, there'll be no further tax to pay.

If you're a higher rate taxpayer, there will be extra tax to pay. You'll be required to pay 'excess liability' - this is equivalent to 25% of the net dividend (that's 20% of the gross dividend payout).

Capital Gains tax (CGT)

Last Updated: March 2008 © Moneyextra.com

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