UK Tax 'Drives Away Wealth Creators'

By ExpatBriefing.com Editorial 28 November, 2011

The UK faces a lost generation of wealth creators, with the 50% top rate of income tax set to push them away and cost the economy billions, a new report has said.

Published by the Centre for Economics and Business Research (Cebr), the report, entitled ‘The 50p tax - good intentions, bad outcomes’ is an examination of how the UK's high-rate marginal tax impacts on Treasury revenues, and looks at how income tax has changed since the 1980s.

According to the Cebr's figures, the UK's 270,000 major wealth creators (the top 1% of income tax payers) contribute around GBP40bn (USD62bn) in income tax a year, or 25% of the GBP163bn paid in income tax to HM Revenue and Customs (HMRC) in total. The 50% rate of tax is charged on all incomes over a GBP150,000 threshold.

Among the conclusions offered by the report is the assertion that the UK has lost its place as an attractive, low-tax jurisdiction that welcomes wealth-creators and has instead become one of the most punitive. As a result, the Cebr has warned that other European countries now are competing in a "silent auction" for the tax from high earners.

Indeed, it is also pointed out that a new generation of wealth creators have a range of legal choices available to them. Digital banking and a creative wealth management industry can mean that while their money is abroad, they can remain working in the UK. In addition, an abundance of financial products now allow individuals to minimize their exposure to the 50% rate of income tax.

Perhaps the most worrying conclusion is the Cebr's assertion that there is a danger that the tax – combined with higher national insurance contributions (NICs) and value-added tax (VAT), and restrictions on pensions – pushes UK taxes over an important psychological threshold that breaks the covenant that wealth creators feel towards their domestic tax regime.

These higher taxes, together with increased labour and capital mobility, will, according to the Cebr, push the country's wealth creators to utilize new tax-minimizing opportunities and move their wealth elsewhere, leaving a vital gap in the UK's revenue used to fund public services.

Furthermore, Cebr’s calculations suggest that the revenue-maximizing top rate of income tax is likely to be less than 40% and that any taxation above this is likely to cost the Treasury billions of pounds over the coming years. The suggestion is therefore that the current 50% rate of income tax does not raise any additional revenue for the government.

Doug McWilliams, the founder and Chief Executive of the Cebr, commented: “Increased globalization and easy access to wealth management services are enabling Britain’s wealth creators to minimize their tax liability in the UK. Our latest report concludes that the higher rate 50p tax pushes Britain’s wealth creators past a psychological threshold that makes them more likely to explore and make use of these methods. In the long-term this could have devastating consequences for government revenue as more money is likely to be lost rather than gained by the higher-rate tax. Our projections show that the 50p tax is set to lose the Treasury more than a billion a year by the middle of the decade.”

Tags: Individuals | Expatriates | Tax | Investment | Economics | Pensions | Value Added Tax (VAT) | Fiscal Policy | Entrepreneurs | Employees | Retirement | International Financial Centres (IFC) | United Kingdom | Tax Thresholds | Professionals | Self-employment | Individual Income Tax |

 





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