Tories May Restore UK Dividend Tax Credit

by Robert Lee, Tax-News.com, London

14 January 2005

New tax proposals unveiled by the Conservatives designed to boost levels of saving in Britain may result in the restoration of the dividend tax credit on pension holdings, Shadow Chancellor, Oliver Letwin, announced this week.

The proposal is one of six options announced by the Tories which are aimed at restoring a culture of saving and investment in the UK.

The other options being considered by the party include: raising the limit on existing tax-free individual savings accounts (ISAs); introducing a lifetime savings account where individual contributions are matched by the government; allowing greater flexibility for people saving through ISAs; reducing the basic rate of income tax on 'savings' income; and introducing new tax credits to encourage employers to make pension contributions.

However, the most far reaching of these proposals is the restoration of the dividend tax credit for shares held in pension plans, controversially abolished by the Labour government in 1997 at a saving of £5 billion to the Treasury.

The axing of the tax credit has been seen by many as a major contributor to the decline of private and occupational pensions, and Letwin argues that the Conservative’s new proposals would go some way towards restoring a culture of saving and investment in the UK.

"A strong savings culture is essential to give people security for the future and independence from the state,” Mr Letwin stated, going on to observe that the decline in the UK’s savings ratio has been combined with a sharp increase in the amount of personal debt incurred by UK residents.

The latest announcement by the Conservatives on tax is the sixth in a series of eight ‘consultations’ on a range of contentious issues including income tax and the taxation of small businesses. However, the party has yet to make any cast-iron election pledges.

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