UK has fourth highest rate of income tax in Europe

As well as significant Government spending cuts planned for the next few years, one of the ways that successive administrations have tried to narrow the UK’s deficit is by raising more tax.

A new survey has found that since the introduction of the new highest rate of tax in the UK – the 50 per cent band – we now have the fourth highest rate of income tax in all of the European Union.

‘Biggest income tax hike in the world in 2010’

The research from major accountancy firm KPMG found that only Sweden, the Netherlands and Denmark now have a higher top rate of income tax than the UK.  Sweden tops the poll with a rate of 56.6 per cent, followed by 55.4 per cent in Denmark and 52 per cent in the Netherlands.

The survey also found that higher rate taxpayers in the UK also suffered from the biggest income tax hike in the world this year, when the top rate paid by people earning £150,000 was raised from 40 per cent to 50 per cent.

Austria and Belgium came in equal fourth place with the UK, with both also charging a highest rate of 50 per cent.

Significant rise over recent years

Just a year ago, the UK was only 13th on the list of top income tax rates in the European Union.  The increase to 50 per cent has therefore catapulted the country up the table.

KPMG said that although income tax had remained static in many locations across the world in the past year, the general upward trend suggested governments were beginning to opt for tax hikes in order to combat deficits.

The accountancy firm reported that ‘Iceland has replaced its flat tax regime with a progressive one, raising the top rate by 9 per cent, while Greece has hiked its highest rate by 5 per cent, Portugal has imposed a 3 per cent hike and France has raised its top rate by 1 per cent’.

Income tax cuts and low rates

Whilst the UK may have increased the top rate of tax by a huge 10 per cent, other countries have tackled the global financial crisis by cutting income tax.  Denmark reduced its top rate of income tax by nearly 7 per cent in an attempt to stimulate consumer spending, whilst Croatia reduces its top rate of tax by 5 per cent.

The lowest tax rates in the EU remain in Bulgaria, where the top rate is just 10 per cent.  Lithuania and the Czech Republic are next, at 15 per cent.

KPMG report that the average top rate of income tax across the whole of the EU is 37.2 per cent, up from 36.7 per cent in 2009.

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