UK currently has one of the most competitive tax rates in Western Europe for top earners

The Labour Party’s plans to reintroduce the 50p tax rate would see high earners in the UK pay 24% more in tax than the current global average, according to a new study by UHY Hacker Young, the national accountancy group.

The extra tax would amount to US$62,172 (£36,345) on an income of US$1,500,000 (£876,915).

With the 50p tax rate, high earners in the UK would take home just 50.1% of their income after tax and National Insurance. This would rocket the UK’s high earners from 14th most heavily taxed, in a study of 25 economies, to the 8th most heavily taxed. (see table below).

UHY Hacker Young studied tax data in 25 countries across its international network. The study captured the ‘take home pay’ for low, middle and high income workers taking into account personal taxes and social security contributions. High earners were defined as workers earning US$1,500,000 (£876,915) per annum. The calculations are based on a single, unmarried taxpayer with no children.

UK currently has one of the most competitive tax rates in Western Europe for top earners, but compares poorly with US
UHY Hacker Young says that workers earning US$1.5m (£876,915) in the UK are US$62,172 (£36,345) better off than two years ago as a result of the reduction of the 50p tax rate to 45p last year by the coalition.

The UK’s current regime is far more attractive for top earners than the rest of its Western European rivals. Take home pay for top earners in the UK is US$67,637 (£39,545) higher than the Western European average, says UHY Hacker Young.

According to UHY Hacker Young, the highest earning taxpayers in the UK face a bigger tax bill than peers in some non-European developed nations and in Eastern European and emerging economies. For high earners there is a typical take home pay of 57% in the USA and 67% in  New Zealand, compared to a typical 54% in the UK.

Eastern European and emerging economies offer the most generous tax regimes to higher earners.  In Dubai and Russia flat rate, or no, taxation means that all taxpayers take home 100% and 87% of their pay respectively, while taxpayers earning $1.5million in Slovakia, the Czech Republic, Jamaica all keep more than 70% of pay.

However, a middle-income taxpayer in the UK, earning US$50,000 (£29,234) per annum, would receive above both the global and Western European average net income at that salary, taking home US$39,053 (£22,833) Low-income taxpayers in the UK earning US$25,000 (£14,617) have some of the highest take home pay amongst the 25 countries.

The UK has the 6th lowest tax burden for low earners out of the 25 countries studied. Ireland is the only European country studied that taxes low earners less than the UK.

Mark Giddens, Partner at UHY Hacker Young, comments:

“The UK Government reduced the 50p tax rate in April last year on the basis that this would encourage wealth creation and prevent a brain drain of skilled professionals.”

“Reintroduction of the 50p tax rate could be something of a backwards step at a time when other countries are rolling back their top rates of tax and could put the UK at a significant disadvantage to its rivals.”

“We would lose some of the edge that we currently have over other Western European countries in attracting successful entrepreneurs and investors. We will also find it harder to compete against other major English speaking economies such as the USA, where high earners already take home an extra US$48,300 (£28,240) compared to the UK.”

* Western European economies in the study are; France, UK, Italy, Austria, Spain, Ireland, the Netherlands, Denmark and Belgium.

Click on charts below to enlarge them

UHY 50p Tax*Minus figures indicate an decrease in tax home pay.
**Denotes countries where the change in tax home pay in USD is a result of exchange rate fluctuations.

UHY 50p tax-2

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