UK taxes near top in Europe

THE UK has become the fourth most highly taxed country in the whole of Europe, a report revealed yesterday while also warning there could be an exodus of high earners from the City.

KPMG’s annual individual income tax and social security rate survey showed the introduction of the 50 per cent rate of tax was the highest personal income tax increase in the world last year.

It also propelled the UK from 13th on the league table last year to fourth in terms of the amount of income tax high earners are expected to pay.

Only Sweden, Denmark and the Netherlands have higher personal income tax rates.

Income tax levels in the UK are now higher than those of key European competitors, France and Germany, KPMG found.

But the survey suggests other governments in Europe and the rest of the world may be following the UK’s example by increasing the top rate of income tax as a way of dealing with their budget deficits.

KPMG said income tax rates globally had risen for the first time in seven years reversing a general decline.

The majority of rate movement in 2010 came from Europe. Those paying the highest income taxes in the world were still those living in the European Union where average rates went up by 0.3 per cent over the past year, although this was in line with the global increase in tax rates.

Jayne Vaughan, tax partner in international executive services at KPMG in the UK, said the higher rate tax bracket could have a negative affect on Britain’s economic competitiveness.

“Individuals are highly mobile and they may decide to vote with their feet. And where employers are concerned, tax is a crucial business issue when it comes to deciding where to locate workforces,” he said.

Vaughan said it was still unclear what the effect of the tax increases around the world would be but added “the fact that high income earners are frequently more mobile should not be overlooked.”