Wealthy UK Individuals Contribute Over £3 Billion in Income Tax Amid Budget Concerns
In a recent analysis by the BBC, it was revealed that 60 of the wealthiest individuals in the UK collectively contributed more than £3 billion in income tax during the 2021/22 financial year. Each of these individuals reported an annual income exceeding £50 million, with many likely earning significantly more and contributing substantial amounts through various other taxes.
The Institute for Fiscal Studies (IFS) highlights that the tax system’s heavy reliance on a small number of affluent individuals raises concerns, particularly as upcoming budget discussions may lead to tax increases. The potential for tax hikes has sparked fears that the super-rich could relocate abroad, which could negatively impact the UK’s financial landscape.
While Labour has dismissed the possibility of altering income tax rates, Chancellor Rachel Reeves has indicated that other tax increases remain on the table. A Treasury spokesperson affirmed the government’s commitment to “addressing unfairness in the tax system.”
The income tax paid by these 60 individuals represents about two-thirds of Labour’s total additional spending commitments outlined in their recent manifesto. UBS, a prominent Swiss banking firm, has forecasted a loss of half a million millionaires from the UK by 2028, primarily due to individuals relocating to countries with lower tax burdens.
The IFS cautioned that the departure of even a few wealthy individuals could create a significant fiscal gap. However, the Green Party contends that the notion of taxing the wealthy more leading to their exodus is unfounded. Previous tax adjustments, such as those made to non-dom status in 2017, did not result in a significant migration of the wealthy.
Recent reports have also raised concerns within the Treasury that the anticipated revenue from eliminating the non-dom scheme would be far less than initially expected. The government had estimated this measure could generate £1 billion, but this projection is now under scrutiny.
Furthermore, the previous Conservative administration left a £22 billion deficit in public finances, prompting discussions about potential tax increases in the upcoming budget. In August, the Chancellor did not rule out a hike in capital gains tax.
Stuart Adam, a senior economist at the IFS, stated that while reports of wealthy individuals leaving the UK are mostly anecdotal, even a slight decrease in their numbers could significantly affect public finances, as a small percentage of individuals contribute a large share of tax revenue.
Adam emphasized that any proposed tax changes targeting high earners could have far-reaching implications, not just in terms of income tax but also in capital gains and other tax revenues.
Green Party co-leader Carla Denyer urged caution regarding claims that wealthy individuals would leave in response to increased taxes. She pointed out that many factors, including professional opportunities, family ties, and cultural appeal, encourage affluent individuals to remain in the UK, and many are willing to pay higher taxes for a better society.
The data discussed in this report was compiled by HMRC and accessed via Freedom of Information requests, reflecting the latest available figures from the 2021/22 financial year. During this period, the UK collected £225 billion in income tax from approximately 33 million taxpayers, with the 60 high earners accounting for just 0.0002% of the taxpayer base while contributing 1.4% to the total income tax revenue.
Initially, HMRC resisted disclosing these figures, citing privacy concerns. However, after further appeals from the BBC, the data was ultimately released.
To mitigate the risk of losing wealthy taxpayers, the IFS has suggested the introduction of an “exit tax.” This concept involves taxing individuals on gains accrued during their time in the UK, even if they do not sell those assets until after leaving. Conversely, it would exempt individuals from being taxed on gains accumulated prior to their arrival in the UK.
A Treasury spokesperson reaffirmed the government’s objective of addressing tax system inequalities to generate revenue necessary for revitalizing public services. They emphasized the removal of the outdated non-dom tax regime and its replacement with a more competitive residency-based system aimed at attracting top talent and investment to the UK.
