The UK is increasingly relying on a small group of high net worth individuals as its main source of tax revenue and this could put its long-term economic stability at risk, a prominent think-tank has said.
According to the Institute for Fiscal Studies, the income tax paid by the country’s 300,000 highest-earning individuals currently accounts for 7.5 per cent of all tax revenue collected by HMRC.
The IFS said the government should be concerned to become too dependent on one particular revenue source, as this would increase the risk that a ‘shock’ to that source ‘would have serious implications for total revenues’. If, for example, a number of HNWs chose to move to countries with lower tax rates, the amount of taxes collected by HMRC could decrease significantly.
These highest-earners also pay larger amounts of VAT and a larger fraction of total capital taxes, the report suggested, making the government even more reliable on them.
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For example, in the last fiscal year, 30 per cent of revenues from stamp duty land tax on residential properties came from transactions worth more than £1 million, which represented only 1 per cent of all residential property transactions.
Property sales in the two local authorities of Westminster and Kensington & Chelsea – where most deals are high-value – accounted for more than 14 per cent of all revenues from residential transactions during the same year.
In the paper, the IFS recommended that the government change the current tax system so that the country’s tax revenues depend on a number of sources.
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