§ Lord Tebbitasked Her Majesty's Government:
Pursuant to the reply given by the Earl of Caithness (col. WA33 of the Official Report of 5th May), concerning income tax rates, whether any taxpayers will be required to pay tax at any rate higher than 40 per cent. on any part of their income in the current financial year.
The Earl of CaithnessThe highest rate of income tax on any form of income is 40 per cent. However in the case of someone who has income (other than dividends) which is less than the basic rate limit, and dividend income which takes him into the higher rate charge, the effect of an extra pound of non-dividend income (taxed at 25 per cent.) would be to push a pound of dividend income into the higher rate charge, thus increasing the marginal rate on that pound from 20 per cent. to 40 per cent. This effect arises because dividend income is treated as the top slice of income.