Tax rate rise for top earners will deter employees from UK

The increase in the tax rate to 45% for top earners will make the UK an unattractive place to work, experts have warned.

Monday’s Pre-Budget Report, which announced a 5% increase in taxation for people earning more than £150,000 from 2011, will put employees – particularly those in financial services and technology – off working in Britain, according to professional services firm PricewaterhouseCoopers (PwC).

Top earners will instead be tempted to go abroad to enjoy more lucrative tax options in countries such as the US, where the tax rate currently stands at 35%.

Sean Drury, international mobility partner at PwC, said: “The UK from 2011 will have the equal highest top rate of tax for the G20 [the 20 biggest economies worldwide]. This puts a question mark on the UK’s attractiveness as a place to work for resident/ non-domiciled executives – particularly those in industries like financial services and technology, which have established industry centres elsewhere around the world.

“Organisations with a high proportion of employees both in this higher earnings bracket and who are non-domiciled will consider finding more attractive locations to work than the UK, such as Zurich, Dubai and Hong Kong or Singapore, which on balance offer increasing security, infrastructure and attractive lifestyles. This may well have a knock-on effect on where organisations locate themselves.”

Matt Ellis, global employer services partner at consultancy Deloitte, said finding people with the right skills for top jobs will become more difficult. “The war for talent will get harder with many of the very best people possibly opting for residence in lower tax jurisdictions, such as the US.

“In many cases employers themselves will have to bear this additional cost where they offer ‘grossed up’ packages – for example, instances where the employer pays the tax bill for expat employees.”

Saudi Arabia has the lowest top rate of income tax in the G20, at 0%. Russia is second, at 13%.

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