In 1997, the tax credit was scrapped for non-taxpayers (except charities and PEPs), which had a particular impact on pension funds, which could no longer claim a refund for any amount that had previously been paid as ACT.
Treasury argued that the change was crucial to long-term economic growth: the existing corporation tax system created biased incentives for corporations to pay out profits as dividends to shareholders (including pension funds, who could then reclaim the tax paid) rather than to reinvest them into company growth (which would result in corporation tax being paid).
The old system of corporation tax was widely viewed by economists as a constraint on British economic growth.
[4] The Times obtained documents under the Freedom of Information Act in April 2007 that showed the chancellor Gordon Brown had been advised that pension funds would suffer a £67 billion loss of the actuarial value of their assets as a net result of a combination of policies including the ACT change.
From 6 April 2016, the tax credit was itself abolished and replaced with a tax-free dividend allowance of £5,000.