October 9, 2013 6:03 pm

UK leads world with 5p cut in top tax rate

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The UK has bucked a global trend with the biggest cut in the top rate of personal tax of any country in 2013.

The 5p cut in the top rate to 45p in April means the UK has moved from joint fifth in a ranking of personal tax rates in the EU to joint 11th. It is now level with France and Germany.

The conclusion was reached in a survey by KPMG International, a professional services firm, which also noted top earners are increasingly facing higher taxes across the world.

Marc Burrows, head of international executive services at KPMG in the UK, said the chancellor’s decision to cut the top tax rate removed a barrier that made the UK less attractive to internationally mobile executives.

He said: “In our view there is a point at which tax rates can squeeze taxpayers too hard and act as a disincentive to growth and investment. At 50 per cent, the UK was probably at that point and lowering the rate thus removes this barrier to an extent, although 45 per cent is not the lowest rate around by any means.”

The UK was one of four countries that reduced their top rates. The others were Greece, which cut its rate from 45 per cent to 42 per cent, Iceland which adjusted its rate marginally from 46.24 per cent to 46.22 per cent and Latvia, which cut its rate from 25 per cent to 24 per cent.

Nine countries increased their income tax rates, pushing the worldwide average up by 0.3 per cent – the second consecutive year it has risen.

KPMG said many countries were creating new tax rates for very high earners or were introducing temporary taxes, to try to address budget deficits. René Philips, KPMG’s head of international executive services said: “Targeting high income earners is a way for governments to gain revenue and be seen by taxpayers as doing something that is fair and necessary for the betterment of their country.”

The highest-profile tax rate change was in the US, where the expiry of cuts enacted under George W Bush resulted in the top federal rate rising from 35 per cent to 39.6 per cent.

The biggest change occurred in Slovenia where the top rate moved 9 percentage points, from 41 per cent to 50 per cent.

India introduced a temporary tax on high earners in the form of a 10 per cent surcharge for the 2013-14 fiscal year. The Czech Republic also put in place a temporary tax, at a 7 per cent rate, which it described as a “solidarity surcharge”. Japan increased its highest rate by 0.84 per cent by introducing a “Special Reconstruction Surtax” to help fund the cost of rebuilding after the 2011 Fukushima disaster.

The KPMG survey highlighted uncertainty over France’s attempt to introduce a 75 per cent bracket for individuals earning more than €1m – proposed by President François Hollande, more than a year ago.

After France’s constitutional council ruled last year that the 75 per cent rate was unconstitutional, it was still unclear whether it would be introduced in France in a different form, it said.

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