Top Rate Income Tax Cuts

In April 2013, the UK cut it’s top rate of Income Tax from 50% to 45%.  The cut was the largest single tax cut anywhere in the world and the UK went from 5th to 11th in the EU table of countries with the highest top rate of tax and to 18th in the world.

It was a bold move for the UK Government to take given the current economic situation and this significant move means the UK top rates are now equal to those of France and Germany.  The cut of 5% compared to an average rate increase of 0.3% across all EU countries in 2013 and 2012.  However, it is important to note that comparisons of top rate tax must be taken in context with band rates, after allowaances, at which lower rates are allocated also in order to reach a true comparison.

Although we may not have the highest top rate of tax in Europe, we do tend to get to our top rate more quickly as the amount of income one may earn in the UK before tipping into the 45% rate band is usually lower than those of our trading partners.

In the business community it seems clear that tax rates this high dis-incentivise people from working harder as the Governement takes more than they do, however the general public’s perception of this cut is to help those at the top end of the pay spectrum, whereas in reality lowering the top rate of tax will increase the tax take of the government more than any attack on anti-avoidance measures by any government.