United Kingdom

Details

  • Service: Tax, Employment Issues
  • Type: Press release
  • Date: 11/10/2012

Top personal income tax rates increase in 2012: KPMG International reports 

  • Global average top personal income tax rate up by 0.3 percent

 

  • But UK bucks global trend with plans to reduce its top rate of personal income tax from 50 percent to 45 percent

 

  • Even prior to the rate reduction, the UK drops from 4th highest to 5th highest in the EU

 

 

The 2011 holding pattern for personal income tax rates is now seeing a return to the 2010 trend of increasing rates with the global average top personal income tax rate going up by 0.3 percent, according to analysis by KPMG International.  However, the UK stands out from this global trend with plans to reduce its top rate of personal income tax from 50 percent to 45 percent next April.

 

The annual Individual Income Tax and Social Security Rate Survey produced by KPMG’s International Executive Services (IES) practice shows this is only the third time that an increase has been observed over the past ten years that KPMG’s survey has been produced.

 

“In large part, this upward tick in personal tax rates is the result of a lack of economic recovery and increasing debt concerns,” says Brad Maxwell, a partner with KPMG’s IES practice in Switzerland. “Many economies deemed it necessary to increase their highest rate of personal income tax through one of two approaches: either through the creation of new income tax rate bands for very high income earners, or through the introduction of temporary taxes to address immediate budgetary deficit concerns.”

 

The most prominent examples of this pointed out in the survey are seen in the recent French and Spanish reforms.

 

France’s reforms saw the introduction of two new tax rate bands for high income earners which has resulted in the top rate increasing from 41 percent to 45 percent. The rate increases are generally deemed as an ‘exceptional contribution’ which affects individuals reporting incomes of above EUR250,000.

 

Maxwell notes: “Further increases may be on the horizon, with President François Hollande planning the introduction of a 75 percent tax rate band for taxpayers earning over EUR1,000,000.”

 

Starting in January 2012, Spain’s ‘complimentary tax’ aims to help address the country’s public deficit. The tax applies to all taxpayers, and ranges from 0.75 percent to 7 percent depending on the individual’s income level. This effectively means that the rate of tax for individuals earning above EUR300,000 has risen from 45 percent to 52 percent.

 

UK bucks the trend

 

The UK is bucking the global trend for raising the top rate of personal income tax with its highest rate scheduled to be reduced from 50 percent to 45 percent next April. 

 

Even before taking this reduction into effect, the UK’s position relative to its European Union peers moved down the rankings in 2012.  The UK moved from having the equal 4th highest rate to equal 5th as Spain jumped from 10th to 3rd highest by increasing its headline rate from 45 percent to 52 percent.  The UK’s relative EU position is likely to move further down the table when changes to the headline top rate in France take effect and the UK’s rate changes to 45 percent.

 

At 45 percent, the UK will be closer to the EU average which, on a purely arithmetical basis, is just over 37 percent and, if weighted for the different size of populations in the various countries, is 42 percent, according to KPMG’s calculations and Eurostat data.

 

EU highest rates of personal income tax 2012

 

Country

 

Rate

 

 

 

 

 

 

2011

 

2012

 

 Change

 

2011 Rank

 

2012 Rank

 

Sweden

56.6%

56.6%

0.0%

1

1

Denmark

55.4%

55.4%

0.0%

2

2

Netherlands

52.0%

52.0%

0.0%

3

3

Spain

45.0%

52.0%

7.0%

10

3

Austria

50.0%

50.0%

0.0%

4

5

Belgium

50.0%

50.0%

0.0%

4

5

United Kingdom

50.0%

50.0%

0.0%

4

5

Finland

49.2%

49.0%

-0.2%

7

8

Ireland

48.0%

48.0%

0.0%

8

9

Portugal

46.5%

46.5%

0.0%

9

10

Germany

45.0%

45.0%

0.0%

10

11

Greece

45.0%

45.0%

0.0%

10

11

France

41.0%

45.0%

4.0%

15

11

Italy

43.0%

43.0%

0.0%

13

14

Luxembourg

42.0%

41.0%

-1.0%

14

15

Slovenia

41.0%

41.0%

0.0%

15

15

Malta

35.0%

35.0%

0.0%

17

17

Cyprus

35.0%

35.0%

0.0%

17

17

Poland

32.0%

32.0%

0.0%

19

19

Latvia

25.0%

25.0%

0.0%

20

20

Estonia

21.0%

21.0%

0.0%

21

21

Slovakia

19.0%

19.0%

0.0%

22

22

Hungary

16.0%

16.0%

0.0%

23

23

Romania

16.0%

16.0%

0.0%

23

23

Czech Republic

15.0%

15.0%

0.0%

25

25

Lithuania

15.0%

15.0%

0.0%

25

25

Bulgaria

10.0%

10.0%

0.0%

27

27

 

 

EU Average

37.0%

37.4%

0.4%

 

 

 

 

Marc Burrows, head of international executive services at KPMG in the UK, comments: “The 50p rate was always described as temporary and so a firm commitment to its reduction was very welcome to businesses and entrepreneurs.  Being ‘open for business’ is not just about the corporate tax regime.  Personal tax is a major issue for entrepreneurs, high net worth individuals and senior executives, many of whom can and do exercise considerable discretion over where they choose to locate.”

 

However the situation is more complex than the headline rates alone might suggest. 

 

Marc Burrows continues: “Headline top rates of tax don’t tell the whole story.  The situation is more complicated than that.  For example, here in the UK, whilst the top rate of personal income tax is 50 percent (reducing to 45 percent) on earnings of £150,000 or more, some people on lower salaries experience a higher marginal tax rate in certain situations.  So earnings between £100,000 and £116,210 are taxed at 60 percent as a result of the clawback of the personal allowance.  And from next January the withdrawal of child benefit for claimants with household incomes of £50,000 or more will result in marginal tax rates of over 50 percent on earnings between £50,000 and £60,000.

 

“Similarly, when comparing rates in different countries, it’s important to consider the threshold at which the rate kicks in and the effect of social security taxes which may be levied.  Indeed the survey shows that when considering the combined effective social security and income tax rate levied on a salary of USD100,000 in a range of different countries, the UK is lower than countries such as Belgium, Italy, Germany and Poland.”

 

Elsewhere in Europe, there is very little change although it remains the region with the highest average top rates of personal tax and contains a number of countries with a top rate in excess of 50 percent. Western Europe continues to have the highest personal tax rates of any sub-region globally (46.1 percent).

 

The average rate for Eastern Europe (16.7 percent) is still less than half of that of other European sub-regions, largely due to the prevalence of low flat tax initiatives. Poland and the Ukraine are notable for being the only two Eastern European countries of those surveyed to maintain a progressive tax band structure.

 

In Northern Europe, the average top personal income tax rate is 36.5 percent. Very little movement was observed in this sub-region during 2012, with the only changes being on the municipal front, as combined rates in Finland, Sweden and Iceland all experienced minor adjustments.

 

Aside from the changes in Spain, rates in Southern Europe have remained relatively stable at an average of 31.7 percent.  Interestingly, while the world’s eyes have been keenly focused on Greece’s economy for much of 2012, the country’s top rate has remained unchanged at 45 percent since 2010 when it was increased from 40 percent.

 

The Middle East and greater Europe region has also seen some movement in tax rates over the past year.  In October 2011 (shortly after the publication of last year’s survey), Cyprus increased its top marginal income tax rate from 30 percent to 35 percent, and applied the change retroactively from 1 January 2011. In 2012, Armenia also raised its tax rate by 5 percent and plans to introduce a further 1 percent increase in 2013. Israel also increased its top marginal tax rate (by three percentage points to 48 percent) and Georgia, which has not altered its top rate of tax for several years, signaled an intention to decrease its rate from 20 to 18 percent effective 2013.

 

Asia was largely quiet on the rate change front, South Korea introduced an additional tax band with a 3 percent increase in an effort to target high earners as a source of additional revenue. Hong Kong and Singapore continue to offer very attractive personal income tax rates, and rates remained constant in the other Asian heavyweights (China, Japan and India) who have not altered their top rate of tax in the last ten years.

 

However, there are indications that this trend is set to change with permanent residents of Japan soon becoming subject to a Special Reconstruction Surtax which will start next year with the intention of helping fund the rebuild in the aftermath of the Great East Japan Earthquake.

 

Aside from the Fijian reforms mentioned above, top rates in the Oceania region remain stable.

 

Some change has been noted in Africa with Egypt introducing a new 25 percent tax band to target super high income earners, and Zimbabwe increasing its top tax rate by over 10 percent (bringing it back in line with 2008 levels).

 

Top rates across North America remained relatively unchanged throughout the year, though Canada’s most populated province (Ontario) recently announced a hike for high income earners which will increase the top combined federal and provincial rate by 1.56 percent, putting the jurisdiction onto the list of locations that introduced an additional tax band for its highest earners in 2012.

 

And while there were no changes to top federal rates in the United States in 2012, the Bush

Tax Cuts are once again scheduled to expire at year’s end meaning that, if the expiration remains on schedule, the top US federal tax rate would increase from 35 percent to 39.6 percent in 2013.

 

Overall, Latin America has also kept top rates constant during 2012, though we note that Mexico is scheduled to decrease its top rate from 30 percent to 29 percent next year, and a further reduction to 28 percent is scheduled for 2014. Guatemala is also scheduled to decrease its top rate in 2013.

 

The survey shows that the highest income tax rates in the world are seen in the small Caribbean island of Aruba with a top rate of 58.95 percent, Other countries with top rates in excess of 50 percent are largely European: Sweden (56.6 percent rate), Denmark (55.4 percent rate), Netherlands (55 percent rate), Austria (50 percent rate), Belgium (50 percent rate) and United Kingdom (50 percent rate). There were exceptions to this from Asia and Africa, specifically Japan (50 percent rate), and new survey participant Senegal (50 percent rate).

 

“While these top rates may appear high, it is important to remember that a country’s highest personal income tax rate is only one indicator of what taxes individuals may pay on their income,” says Maxwell. “Just as influential are which other taxes may apply and on which income thresholds those rates are charged.”

 

KPMG’s Individual Income Tax and Social Security Rate Survey is a cross-border survey of personal tax and social security rates with historical data from 2003-2012. The report covers 114 countries, concentrating on the highest level of personal tax payable to the central government. 

The study was commissioned by KPMG’s IES practice, comprising professionals from across our global network of member firms. 

 

A copy of the survey is available at: www.kpmg.com/tax or visit our online tax rate tool at: www.kpmg.com/taxrates for easy corporate, indirect and individual income tax rate comparisons and analysis.

 

-Ends-

 

For further information please contact:

 

Margot Cowhig, KPMG Corporate Communications

Tel:  0207 694 4246 Mobile: 07920 274856: margot.cowhig@kpmg.co.uk

 

KPMG Press Office: 0207 694 8773

 

 

About KPMG International

 

KPMG is a global network of professional firms providing Audit, Tax and Advisory services.  We operate in 152 countries and have 145,000 people working in member firms around the world.  The independent member firms of the KPMG network are affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity.  Each KPMG firm is a legally distinct and separate entity and describes itself as such.

 

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KPMG's Individual Income Tax & Social Security Rate Survey 2012