Introduction Background Note
34.For 2009-10 there are two main rates of income tax: the basic rate and higher rate. The effect of this section and Schedule is to add a further main rate of income tax – the “additional rate”. This will be introduced in 2010-11 at a rate of 50 per cent.
35.Separately section 1 to this Act introduces the charge to income tax for 2009-10 and sets the main rates of income tax at 20 per cent for the basic rate and 40 per cent for the higher rate. From 2010-11, the additional rate of income tax will be set along with the other main rates of income tax.
36.The rates of tax which apply to dividends are not set separately each year. Rather they are included in section 8 of ITA. From 2010-11 the new dividend additional rate introduced by the section will be 42.5 per cent and will apply where dividends form part of an individual’s taxable income in excess of £150,000.
37.The trust rate of tax is the rate of tax paid by trustees that generally applies to the income of discretionary or accumulation trusts. Trustees are liable to tax on income received at the trust rate of tax, but dividends and other similar income are chargeable at the dividend trust rate.
38.All income paid to the beneficiaries of discretionary or accumulation trusts that are not settlor interested carries a credit at the trust rate, so the payment is treated as if it had been made after the deduction of tax at that rate. Beneficiaries will be able to reclaim tax where the trust rate exceeds the rate of tax at which their income is chargeable. Different rules apply where the trust is settlor interested. The payment is not grossed up but notional tax is provided to the beneficiary.