In Focus: TaxMar 30 2021

Treasury is 'leaning' on Britain's higher taxpayers

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Treasury is 'leaning' on Britain's higher taxpayers
Photo by Mike from Pexels

HM Treasury is leaning on the UK's wealthy to help shore up its Covid-19 financial black hole, a private equity investment company has claimed.

According to analysis carried out by Growthdeck, the total tax take from those people earning £150,000 and above has doubled to £69bn in the past decade.

Meanwhile, income tax payments from basic-rate taxpayers has fallen by 1.7 per cent over the same period. 

This means a fewer higher-rate taxpayers (and additional rate at 45 per cent) are shouldering more of the fiscal burden than the broader base of basic-rate taxpayers in Britain.

Growthdeck's analysis has shown that income tax paid by people in the higher rate (40 per cent) bracket has increased by 101 per cent, from £34.5bn in 2010-11 to £69.2bn in 2020-21.

At the same time tax paid by basic rate taxpayers (at 20 per cent) has fallen from £68.6bn to £67.4bn. 

But chancellor Rishi Sunak's decision to freeze the Income Tax thresholds in the March 2021 Budget until 2026 – a move that is projected to bring in an extra £8.2bn over the next five years – means more individuals are likely to be caught in higher tax rate brackets.

As a result, this will put pressure on those saving for retirement, according to Growthdeck.

Gary Robins, head of business development at Growthdeck, said: "With the Pension Lifetime Allowance also unchanged for the next five years, more higher earners are likely to be looking for options to reduce growing income tax bills.

"More people should consider whether the Enterprise Investment Scheme, the Government’s flagship scheme to encourage private investment in growth businesses, is an appropriate way for them to reduce income tax.

Robins added: “There has been a clear effort by the Government to shift the tax burden on to higher earners over the last decade. They are now shouldering the load in a way not seen in this country for decades.”

“The reliance on high earners to cover the costs of the pandemic is only expected to get worse over the years due to multiple tax freezes announced in the Budget. Tax reliefs like EIS that cover income tax, CGT and IHT offers a route for these individuals to reduce their tax bills.”

Although no increases to capital gains tax or inheritance tax were announced in the March Budget, there are concerns these increases have simply been pushed back to future financial statements by the chancellor.

Concerns about tax changes have escalated following reports in 2019, 2020 and early 2021 by the Office for Tax Simplification recommending significant changes to CGT and IHT, among other measures to simplify the UK's cumbersome tax code.