For 1999/2000, the higher rate of income tax is 40%. You pay tax at the starting rate (10%) on the first £1,500 of your taxable income (the starting rate band), at the basic rate (23%) on any income between £1,500 and £28,000 (the basic rate band), and tax at the higher rate (40%) on any income in excess of £28,000. However, you do not pay basic rate tax on savings income, such as interest and dividends. To the extent that your interest from banks or building societies falls within the basic rate band it is taxed at the savings rate of 20% instead of the basic rate. To the extent that your dividend income falls within the basic rate band it is taxed at the savings rate of 10%. To the extent that dividend income falls into the higher rate band it is taxed at 32.5%.