UK’s Top Tax Rate Lowering Revenues

November 24, 2011 Taxation in UK

A stack of pound coinsLONDON – The UK’s top marginal tax rate is actively driving high income earners out of the country, leaving middle and low income individuals to plug any arising budget gaps.

On November 23rd the UK Centre for Economics and Business Research (CEBR) released a new report claiming that the country’s top marginal tax rate of 50 percent is not in sync with the realities of the modern business environment, and is encouraging high earning individuals to leave the UK, ultimately lowering the government’s tax take.

According to the report, rate of 50 percent is actively driving a “modern generation of wealth creators” to move overseas or look at means of lowering their tax liabilities through the use of offshore tax planning. The report claimed that high income earners are able to utilize a number of legal and compliant methods manage their tax liabilities and channel their wealth into overseas arrangements. Wealthy individuals are now aided by an increasingly sophisticated set of tools offered by the tax planning industry, easy access to digital banking technologies, and employers who are progressively more willing to implement custom tailored remuneration packages. The CEBR report also noted that overseas tax authorities are showing a rising willingness to conduct one-on-one negotiations with high earning individuals in order to draw their wealth.

The CEBR estimates that taxes collected from the top 1 percent of earners contribute nearly one quarter of the UK’s GBP 163 billion income tax collections total. However, if the 50 percent tax rate is maintained, the contributions made by high earners will invariably decrease, as a higher number of individuals make use of overseas tax planning and wealth structuring arrangements. If the flow of wealth is not stemmed, the government will see a budget gap of approximately GBP 1 billion by 2016, which is likely to be plugged with increases to tax rates faced by middle income earners. Commenting on the CEBR forecast, Colin Stanbridge, chief executive for the London Chamber of Commerce and Industry, said that the tax revenue reduction could lead to the average UK household seeing an increase of GBP 30 per annum to its tax liabilities.

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