Tiny number of high earners use tax reliefs

Tim Wallace
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THE VAST majority of high earners pay the maximum possible amount of tax, with very few benefiting from the legitimate reliefs which the government plans to limit, Treasury figures showed yesterday.

The facts became clear as accountants blasted George Osborne’s plans as promoting “uncertainty in the tax system,” hurting businesses and potentially hitting investment.

George Osborne announced he would cap income tax reliefs for charitable donations, offsetting business losses and various interest payments, on the basis that he had seen 20 tax returns where high earners paid almost no income tax because of reliefs.

However, the new figures show that is far from the norm, which most top earners paying above 40 per cent income tax across their income as a whole.

Seventy-two per cent of those earning above £10m per year paid an average rate of at least 40 per cent on their earnings, and that includes income from other sources like dividends, which is taxed at an effective rate of 32.5 per cent.

Of those on between £5m and £10m, 81 per cent paid at least 40 per cent tax, alongside 80 per cent of those earning £1m to £5m.

A small minority – nine per cent of those on over £10m and seven per cent of those earning £5m to £10m – pay below 20 per cent.

Furthermore, the reliefs that result in some lower rates were deliberately created for very valid reasons, and capping them could damage the economy, according to PwC partner Alex Henderson.

“When a business is set up, it often makes losses in the first few years. Offsetting those against other incomes boosts working capital and helps get the business off the ground,” he told City A.M.

“Restricting that could potentially constrain startups and hit business investment. The purpose of these reliefs, as well as their level, needs to be considered.”