United Kingdom Report Says Tax Law Unfairly Causing Tax Hikes

In a report released on April 5, 2019, the Institute for Fiscal Studies, a U.K. research organization, says that higher earners in the U.K. are being subjected to continuing unwarranted tax increases due to the lack of inflation adjustments for a number of income thresholds. For the report, go to https://www.ifs.org.uk/publications/14048.

For example, those earning over 150,000 pounds face a 45% additional income tax rate. According to the institute, the number of taxpayers subject to that higher rate increased from 319,000 to 428,000 over the last decade due to the failure to adjust the threshold for inflation. Had the threshold been adjusted for inflation, it would have been approximately 180,000 pounds now. Similar analysis applies to an increase from 647,000 to 986,000 taxpayers subject to the 100,000-pound threshold at which the personal income allowance is withdrawn. According to the Institute, the lack of adjustment of that threshold, which should be 120,000 pounds had it been adjusted for inflation, creates an “effective 60% income tax rate on incomes between 100,000 and 123,700 pounds.”

Other unadjusted thresholds that contribute to higher taxes are those that trigger a reduction in the annual limit on tax-privileged pension saving, and that determine when the child tax benefit is withdrawn.

Recent governments have declined to make inflation adjustments, thus triggering hidden tax increases.

How This Impacts Mobility

Expatriate employees working in the U.K. are likely prominent among those affected by lack of inflation adjustments, thus increasing their U.K. tax and the tax adjustment burden on their employers.

Read More