According to a new study carried out by Warwick University and the London School of Economics (How much tax do the rich really pay? New evidence from tax microdata in the UK), some of the UK’s wealthiest people are getting away with paying a lower rate of tax than someone earning just £15,000 and that, on average, a person with £10 million in total remuneration had an effective tax rate of only 21%. People on earnings of £30,000 pay more tax than this rate.

Astonishingly, 10% of people receiving more than £1 million pay a lower rate than someone earning just £15,000. This is due to the way the tax system is designed rather than involving tax avoidance or evasion strategies.

The very rich are able to take their remuneration as capital gains and corporate dividends in order reduce their taxes. If the Government closed this loophole an estimated extra £20 billion could be collected. All that the Government needs to do is tax capital gains and dividends at the current ‘headline’ tax rates for people getting more than £150,000 a year, which is a 45% tax rate.

Dr Advani, Assistant Professor at the University of Warwick’s Economics Department and CAGE Research Centre, “It is important to realise that raising money from the rich doesn’t require increasing headline tax rates. Many of the richest pay far less than the top rate. An Alternative Minimum Tax of 35 per cent on remuneration above £100,000 would raise as much money as adding 2p to the basic rate, and be concentrated only on the rich who pay the least.” Such a tax could raise around £11 billion and arises out of the consideration of who amongst the rich is not paying their fair share?

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