Tax  

Parties fail to tackle 'stealth' tax zone

Parties fail to tackle 'stealth' tax zone

The UK is at risk of losing senior professionals because none of the three main political parties pledge to tackle the so-called ‘stealth zone’ of tax, an accounting firm has warned.

The ‘stealth zone’ refers to the tax bracket where people earning between £100,000 and £123,000 are currently taxed at 60 per cent.

Under the Labour Party, the income tax rate will increase to 67.5 per cent, and under the Liberal Democrats it will jump to 61.5 per cent.

Research by accounting, tax and advisory practice Blick Rothenberg showed how the three main parties’ pledges on Income Tax and National Insurance would affect workers’ take home pay.

  Conservatives Labour Liberal Democrats
Maximum personal allowance         
Personal allowance*  £ 12,500  £ 11,500  £ 11,500
Income limit for Personal Allowance  £ 100,000  £ 100,000  £ 100,000
*Personal allowance is reduced by £1 for each £2 of income (less certain reliefs) over £100,000         
Income tax brackets         
Basic Rate Band/Tax Rate £ 37,50020% £ 33,50020% £ 33,50021%
Higher Rate Band/Tax Rate £ 112,50040% £ 46,50040% £ 116,50041%
Additional Rate Band/Tax Rate £ 150,00045% £ 43,00045% £ 150,00046%
Top Rate Threshold/Tax Rate N/AN/A £ 123,00050% N/AN/A

A spokesman for Blick Rothenberg said the parties should be mindful of this ‘stealth zone’, which will make the UK less competitive in terms of attracting senior professionals to posts in the public and private sectors, particularly when compared to other countries’ tax rates.  

The firm said this was particularly important with Brexit negotiations due to start after the election on 8 June.

The accounting firm said workers who earn less than £50,000 per year will notice little difference between today’s take-home pay and all party manifestos.

But workers earning between £80,000 and £100,000 per annum will gain most from the Conservative manifesto.

For earners between £100,000 to £150,000 the policies of the three parties are more noticeably diverged. 

Under current legislation, for anyone earning over £100,000, an individual’s personal tax allowance is reduced by £1 for every £2 earned, reducing to zero when gross pay reaches £123,000. 

The shrinking personal allowance creates means people are taxed at a 60 per cent rate on the top slice of £23,000.

katherine.denham@ft.com