Budget2012: Top rate of tax cut to 45p

by Richard Crump

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21 Mar 2012

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THE CHANCELLOR is to cut the top rate of tax for the UK's highest earners from 50% to 45%, or 45p in the pound, from April next year.

Justifying the move, George Osborne said the increase from 40p to 50 raised just a third of the £3bn the government was told it would raise.

"A 50p tax rate, with all the damage it does to Britain's competitiveness, can only be justified if it raises significant sums of money," Osborne said in his Budget Statement.

Osborne added that the direct cost of cutting the tax rate by 5p is only £100m a year, while HM Revenue & Customs calculate that the loss of other tax revenues could cancel that out.

"In other words, it raises at most a fraction of what we were told - and may raise nothing at all," Osborne said.

Francesca Lagerberg, head of tax at Grant Thornton, says the cut will be welcomed by business "which has sought to attract top executives in the face of an unattractive tax regime."

"It is also likely to drive behaviour for the next 12 months as those with the wherewithal to defer dividends and bonuses will do so until the tax rates fall," Lagerberg.

Chris Sanger, head of tax policy at Ernst & Young, claims the UK's arrivals lounges will be ‘booming' as a result of the cut.

"By removing this deterrent, the Chancellor has put the substance behind his rhetoric; the UK is open for business," Sanger said. "The delay of a year is somewhat surprising, especially as he criticised his predecessor for forestalling. In practice, many people will now plan on 45% but we can still expect income to be deferred until after the 50p rate reaches its death day."

However, Osborne also signalled that some of that money would be clawed back by slapping a new 7% stamp duty land tax on homes worth £2m.

Stephen Herring, tax partner at BDO, says the new tax band will affect more than the super-rich.
"I understand the higher SDLT rate of 7% but the threshold at £2m is too low. It will affect too many London and south east properties," Herring told Accountancy Age.

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