Pressure mounting on government to scrap 50% tax rate
Pressure is mounting on the government to scrap the 50% income tax rate, as dozens of the UK's top businessmen send a letter to the chancellor urging for it to be axed to attract entrepreneurs to the country.
More than 30 heads of business, including the chairmen of BAA, Prudential and PricewaterhouseCoopers, wrote to George Osborne yesterday calling for the government to take "immediate actions" to boost confidence in the wake of the turmoil in southern Europe.
Specifically, they asked for the immediate scrapping of the 50% tax rate to attract more entrepreneurs to Britain and a £1,000 increase in the tax-free personal allowance. The 50% tax rate is currently applied to people earning more than £150,000. A scrapping of that rate means the 40% rate will become the highest income tax band.
The letter comes ahead of the chancellor's autumn statement on 29 November, when Osborne will give an update on the state of the economy as well as outlining any changes to taxation and how the government spends its money.
John Kelly, chartered accountant partner at Square One Financial Planning, agrees that the 50% rate should be scrapped, arguing that it is "well recognised that total tax revenue rises with lower marginal rates as people don't leave the country to avoid tax".
He comments: "With National Insurance, top taxpayers pay over 50%, which means they are working more for the taxman than themselves. And let's not forget, people who earn such money work very hard for their incomes. These high earners are often the creators of businesses and therefore jobs for those who do not have the same talent, management skills or qualifications. Do we really want to punish them for their successes and risk losing this hot-bed of talent? A reduction now will encourage entrepreneurship in the UK, bring in talent and boost the economy."
In the event of the rate being axed, pensions firm A J Bell is urging 50% taxpayers to maximise pension contributions now.
Marketing director Billy Mackay says: "With the chancellor's speech on the horizon top-rate taxpayers should look at the amount they can contribute to their pension and consider doing so sooner rather than later. They risk losing a very valuable chunk of tax relief if the 50% tax rate is removed."
This article was written for our sister website Money Observer
A scheme originally established in 1944 to provide protection against sickness and unemployment as well as helping fund the National Health Service (NHS) and state benefits. NI contributions are compulsory and based on a person’s earnings above a certain threshold. There are several classes of NI, but which one an individual pays depends on whether they are employed, self-employed, unemployed or an employer. Payment of Class 1 contributions by employees gives them entitlement to the basic state pension, the additional state pension, jobseeker’s allowance, employment and support allowance, maternity allowance and bereavement benefits. From April 2016, to qualify for the full state pension, individuals will need 35 years’ of NI contributions.
Invidivual Savings Accounts were introduced on 6 April 1999 to replace personal equity plans (PEPs) and tax-exempt special savings accounts (TESSAs) with one plan that covered both stockmarket and savings products, the returns from which are tax-exempt. The ISA is not in itself an investment product. Rather, it’s a tax-free “wrapper” in which you place investments and savings up to a specified annual allowance where the returns (capital growth, dividends, interest) are tax-exempt (you don’t have to declare ISAs and their contents on your tax return). However, any dividends are taxed within the investment, and that can’t be reclaimed.