The Chancellor has asked HM Revenue & Customs to check whether the top rate of income tax at 50% is making any money for the Treasury.
This follows suggestions from some economists that a combination of tax avoidance and evasion has resulted in the new highest rate of income tax raising less revenue than originally expected.
We do not expect to see the 50% income tax rate, which was introduced by the previous government, remaining in place for many years.
Unfortunately, we need to wait until at least the end of this tax year in April 2012 before HMRC knows how much money the top rate of income tax will raise. This could mean any decisions about scrapping the 50p tax rate are delayed until after the facts are known.
In response to this speculation that the top rate of income tax could be scrapped, the Liberal Democrats are pushing for capital gains tax to be levied on profits from the sale of homes worth over £1m.
Under current rules, first homes are exempt from capital gains tax (principle residence relief). This proposal to tax principle residences is being referred to in the press as the “son of mansion tax”.
The Lib Dems also want to see the income tax personal allowance raised to £10,000. This is a move which has already started under the coalition government and is likely to continue.
Perhaps more pressing than the removal of the 50p income tax rate is restoring the personal allowance for those who earn over £100,000 a year.
Since the start of the 2010/11 tax year, the personal allowance has been reduced by £1 for every £2 of earnings above £100,000. This reduction applies irrespective of age.
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