The taxman treats UK share dividends as being paid net of tax at 10 per cent. Any dividends paid are grossed up according to the fraction 100/90 and are then taxed at either 10% (if the shareholder is a basic rate taxpayer) or 32.5%  (if the shareholder is a higher rate taxpayer). A tax credit equivalent to the amount of the grossing up can then be deducted, although this can never create a repayment of tax. This equates to an effective income tax rate on dividends for a higher rate taxpayer of 25%.

The tax treatment of dividends can be extremely confusing because of terms like "tax credit", "net dividend" and "gross dividend". The bottom line is that higher rate taxpayers pay an extra 25 per cent tax on their dividend cheques. Other taxpayers pay no extra tax after they have received their cheques.

Another big bonus is that dividends are not subject to NIC. For non residents receiving dividends from UK companies, they would be likely to suffer no UK income tax.