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Wealthiest in Britain
paying just 20 per cent
tax rate, new research
shows
A tenth of people receiving more than £1m paid a lower
rate than someone earning just £15,000

Ben Chu Economics Editor

· Monday 15 June 2020 14:16 · Comments

The coronavirus economic crisis – with its uneven economic

impacts – has intensified public attention on income inequality
(Getty)

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Some of the wealthiest people in the UK are

paying an effective tax rate of just 20 per cent,
pioneering new research has found.

Researchers from Warwick University and

the London School of Economics (LSE)
analysed anonymised HMRC tax returns of
higher earners and found that the average
person with £10m in total remuneration had
an effective tax rate of just 21 per cent – less
than someone on median earnings of
£30,000.

And a tenth of people receiving more than

£1m paid a lower rate than someone earning
just £15,000.

The very rich are able to – entirely legally –

reduce their taxes by structuring their affairs
to take their remuneration as capital gains and
corporate dividends.

These are forms of remuneration that attract a

significantly lower tax rate than income tax.

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Six ways the coronavirus pandemic threatens to
worsen inequality

The coronavirus economic crisis – with its

uneven economic impacts – has intensified
public attention on income inequality.

And the significant rise in public borrowing

necessitated by the slump has raised pressure
for future tax rises.

The researchers estimate that up to £20bn

extra in tax could be raised by the
government if it taxed capital gains and
dividends at existing headline income tax
rates, which is 45 per cent for those receiving
more than £150,000 a year.

However, in recognition of the fact that some

rich people do pay a higher tax rate, the
report’s authors – Arun Advani of Warwick
University and Andy Summers of the LSE –
instead recommend an “alternative minimum
tax” (AMT).

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This would require those receiving more than

£100,000 – from all forms of remuneration –
to pay at least a 35 per cent tax rate on their
income plus gains. They calculate that this
would raise around £11bn.

“Instead of asking, can the rich pay more?, a

better question may be: who amongst the rich
is not paying their fair share?,” they write.

The more you receive, the lower

tax rate you pay

Source: Warwick and LSE report

Some tax experts argue that attempts to

increase taxes on the very wealthy, regardless
of the fairness question, are unlikely to raise
much additional income, partly because
people would move their assets offshore in
response.

But Dr Advani suggested the AMT would be

better suited to countering offshoring than
the traditional route of raising income tax
rates on higher earnings.

“I would expect it to be an order of magnitude

smaller than changes to top rates,” he told The
Independent.

Entrepreneurs’ relief has been one of the

major avenues in recent years for the very
wealthy to reduce their effective tax liability

Analysts say that it does little to encourage

genuine entrepreneurship.

The relief was curtailed by the chancellor,

Rishi Sunak, in the March Budget, although
not abolished.

Opponents of higher tax rates on the

wealthiest point out that an estimated 30 per
cent of total UK income tax was paid by the
top 1 per cent in 2019-20, up from 25 per cent
before the 2008-09 financial crisis, while
their share of income has been constant at
around 14 per cent.

Yet such calculations do not include capital

gains.

Other research this year by the Warwick and

LSE authors shows that, if capital gains are
included, the total remuneration share of the
top 1 per cent has been growing faster than
previously thought over the past decade,
rising from 15 per cent to 17 per cent.

More about: Tax Capital Gains Dividends Income Tax

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