60% income tax loophole
How much income tax do you actually pay?
Unless you’re a former boy band member, ex-radio breakfast show host or headlining comedian, chances are you pay rather a lot.
The Institute of Fiscal Studies (IFS) has today hit out at an anomaly in the UK tax system which results in around 500,000 professionals paying income tax at 60% on some of their earnings.
This 60% income tax loophole is the result of something introduced by the former Labour government, which resulted in those with earnings between £100,000 and £120,000 paying 60p in the pound in income tax.
The IFS has been critical of this loophole, saying it is “hard to make much sense” of how it works.
What the system means today is an effective band of income tax at 60% on earnings between £100,000 and £121,000, before the tax rate drops back to 45%.
The 60% income tax loophole is one of a number of major unfair areas of the UK tax system, according to the IFS.
Eight of these were introduced by Labour and not reversed by the current coalition government, with three of them introduced by George Osborne.
Along with the 60% income tax rate, the IFS is critical of stamp duty taxes, “short term meddling and complication” to the pension regime, the imminent introduction of a married couples’ tax allowance and council tax bills being assessed on property values which will soon be 25 years out of date.
It seems that the only way to fix these “poor tax policies” is to radically reform the entire tax system, making it simpler and fairer for all.
Only time will tell whether this or another government has the necessary motivation to tackle tax simplification and fairness.
Unless it is seen as a clear vote winner, I suspect it will not play a prominent role in election campaigning next year.