UK world leader in top tax rate cut

New research by KPMG International shows the UK has witnessed the world’s biggest cut in the top rate of personal tax.

The 5p cut in the top rate (to 45p) not only bucked global trends for 2013 – but saw the UK move from joint fifth to joint 11th in a ranking of personal tax rates within the EU.

The UK is now tied with France and Germany.

Back in 2012 George Osborne risked a political backlash by announcing plans to scrap the 50p tax rate.

He noted lowering the higher rate to 45p would only cost £100 million a year, and that other targeted taxes for the rich would raise five times that loss.

KPMG’s Head of International Executive Services Marc Burrows has said the lower tax rate has made the UK more attractive to internationally mobile executives.

“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%, the UK was probably at that point and lowering the rate thus removes this barrier to an extent, although 45% is not the lowest rate around by any means” he continued.

The worldwide view

In total, there were only four countries which reduced their top tax rate.

Greece’s was cut from 45% to 42%; Latvia’s lowered from 25% to 24%; and Iceland’s was minimally reduced – from 46.24% to 46.22%.

In total, nine countries increased their rates; thus increasing the worldwide average by 0.3%.

This is the second year in a row the overall top tax rates have increased, with KPMG stipulating countries were creating higher taxes for higher earnings to address their deficits.

The most publisised tax rate change took place in America – which has jumped from 35% to 39.6% after cuts administered by George W Bush expired – but the biggest increase took place in Slovenia, with a jump from 41% to 50%.

Other notable changes

India and the Czech Republic introduced temporary taxes on high earners at 10% and 7% respectively.

And in order to rebuild the country after the 2011 Fukushima disaster, Japan also increased its highest rate by 0.84% as a “Special Reconstruction Surtax.”

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