United Kingdom

Details

  • Service: Tax
  • Type: Press release
  • Date: 09/10/2013

UK moves from joint 5th to joint 11th highest in EU ranking of top rates of personal tax, according to KPMG research 

  • Global average income tax rate increases again this year by 0.3 percentage points, KPMG International reports

 

  • But UK bucks trend with reduction from 50% to 45% - the largest reduction seen globally – taking it from the 5th to 11th joint highest rate in the EU

 

Addressing government budgetary deficit concerns, many countries around the world continue to either create new income tax rate bands for very high income tax earners or are introducing new temporary taxes. According to KPMG International, the global average income tax rate increased again this year by 0.3 percent – the second year in a row. 2013 also marks the second highest quantity of rate increases (9 countries) since KPMG began collecting rate data in 2003.  But against this background upward trend, the UK moved in the opposite direction with the biggest top rate cut seen globally in 2013 reducing it from 50 percent to 45 percent and as a result from having the 5th joint highest top rate of personal tax in the EU to 11th joint highest.
 

The most highly publicised tax rate change for 2013 occurred in the US, where the expiration of Bush administration era tax cuts saw the highest federal rate increase from 35 percent to 39.6 percent.  Slovenia holds the title of the greatest change moving up 9 percentage points from 41 percent to 50 percent.

 

“Targeting high income earners is a way for governments to gain revenue and be seen by taxpayers as doing something that is fair and necessary for the betterment of their country,” says René Philips, KPMG’s Global Head of International Executive Services.  

 

India is one example to note with its introduction of a new temporary tax on high earners.  For the 2013/14 fiscal year only, India has imposed a 10 percent surcharge on tax paid by individuals earning over INR1million. Similarly, the Czech Republic put in place a temporary tax, referred to as a ‘solidarity surcharge’ and applied at a rate of 7 percent to income exceeding CZK1,242,432.

 

In addition, Japan increased its highest rate by 0.84 percent due to the introduction of a ‘Special Reconstruction Surtax’ which the Japanese government introduced to help fund the cost of rebuilding after the Great East Japan Earthquake of 2011.

 

Some countries, notably the UK, decreased their top rates of personal tax in 2013

 

Latvia decreased its flat tax rate by 1 percent as part of a staggered move to reduce its rate from 25 percent to 20 percent by 2015, and Greece decreased its top rate by 3 percent (from 45 percent to 42 percent).  While the top rate did decrease in Greece, the change was part of a wider move to restructure all tax rate bands.  These changes saw tax rates increase at the lower and middle levels, to the extent that tax rates actually increased for all individuals earning under EUR 220,000 (despite the decrease in the top rate).

 

The most notable decrease occurred in the UK, where the top rate was reduced from 50 percent to 45 percent effective 6 April 2013.  During its 3 years of operation, the UK’s 50 percent rate was widely criticised for driving high-earning individuals abroad and acting as a deterrent to entrepreneurship. 

 

Similar criticism has been applied to the highly-publicised 75 percent tax bracket (on individuals earning over EUR 1million) proposed by French President, François, Hollande, over a year ago.  In December 2012, France’s constitutional council ruled that the 75 percent rate was unconstitutional, and it is still unclear whether a tax on the “super rich” will be introduced in France in a different form.

 

Marc Burrows, Head of International Executive Services at KPMG in the UK, said: “Dropping the UK’s top rate from 50 percent to 45 percent enhanced the UK’s attractiveness to internationally mobile executives, as did a number of recent corporate tax reforms and rate cuts.  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 percent, the UK was probably at that point and lowering the rate thus removes this barrier to an extent although 45 percent is not the lowest rate around by any means.

 

“It’s important to remember that it’s not all about tax; the UK has a number of other attractions and is a very popular destination for senior globally mobile businesspeople.  They like the culture here, the cities, the countryside, the shopping, the education system and even the weather.  Amongst all these factors, the tax system too, plays a significant role in deciding where to locate so ensuring that we can compete on the global stage is crucial.”

 

Rate increases in 2013

 

 

Country

2012 rate

2013

Armenia

25%

26%

Denmark

55.38%

55.56%

Egypt

20%

25%

Finland

49%

51.13%

Israel

48%

50%

Luxembourg

41.34%

43.6%

Portugal

46.5%

48%

Slovenia

41%

50%

US

35%

39.6%

 

 

 

Countries with rate decreases in 2013 as shown in the KPMG tax rates online tool:

 

 

 

Country

2012 rate

2013

Greece

45%

42%

Iceland

46.24%

46.22%

Latvia

25%

24%

UK

50%

45%

 

 

UK moves from 5th joint highest to 11th joint highest top rate of personal income tax in the EU

 

The top rates of personal income tax of EU countries and their relative rankings in 2012 and 2013 are listed below.  Marc Burrows commented: “The UK dropped from having the 5th joint highest top rate of personal tax in 2012 to the 11th joint highest as a result of reducing the top rate from 50 percent to 45 percent.  However there does seem to be a trend emerging in which countries introduce targeted temporary tax rates on high income (surcharges/temporary taxes and special reconstruction tax) which is a worrying development for internationally mobile executives and may, as was arguably the case for the UK, ultimately backfire in terms of damaging the country’s attractiveness and failing to raise as much revenue as initially forecast.”

 

Location

2012 (%)

2013 (%)

Change (% points)

Rank 2012

Rank 2013

Sweden

56.6

56.6

0

1

1

Denmark

55.38

55.56

0.18

2

2

Spain

52

52

0

3

3

Netherlands

52

52

0

3

3

Finland

49

51.13

2.13

8

5

Belgium

50

50

0

5

6

Austria

50

50

0

5

6

Slovenia

41

50

9

16

6

Ireland

48

48

0

9

9

Portugal

46.5

48

1.5

10

9

United Kingdom

50

45

-5

5

11

Germany

45

45

0

11

11

France

45

45

0

11

11

Luxembourg

41.34

43.6

2.26

15

14

Italy

43

43

0

14

15

Greece

45

42

-3

11

16

Croatia*

40

40

0

17

17

Malta

35

35

0

18

18

Cyprus

35

35

0

18

18

Poland

32

32

0

20

20

Latvia

25

24

-1

21

21

Czech Republic

15

22

7

26

22

Estonia

21

21

0

22

23

Slovak Republic

19

19

0

23

24

Romania

16

16

0

24

25

Hungary

16

16

0

24

25

Lithuania

15

15

0

26

27

Bulgaria

10

10

0

28

28

 

EU average excluding Croatia

37.36

37.85

0.49

 

EU average including Croatia

37.46

37.92

0.46

 

 

Global average

31.71

31.91

0.2

 

 

 

 joined EU in 2013

 

 

 

-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

 

Notes to editors.

 

KPMG LLP, a UK limited liability partnership, is a subsidiary of KPMG Europe LLP and operates from 22 offices across the UK with over 12,000 partners and staff.  The UK firm recorded a turnover of £1.8 billion in the year ended September 2012. KPMG is a global network of professional firms providing Audit, Tax, and Advisory services. We operate in 156 countries and have 152,000 professionals 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.  KPMG International provides no client services.

 

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