Apr 10 2012
George Osborne has described being "shocked" to discover that some of the wealthiest people in the country pay "virtually no" income tax.
The Chancellor said he had seen "anonymised" tax returns submitted by multi-millionaires using aggressive avoidance schemes to dramatically reduce their tax bills.
HM Revenue and Customs (HMRC) found that the income tax rate among some of the highest earners was, on average, only 10%.
Mr Osborne said the HMRC study convinced him of the need to "take action" to ensure high earners pay more income tax.
In last month's Budget he limited how much people could offset their tax bills by investing in businesses or donating to charity. Anyone seeking to claim more than £50,000 of tax relief in any one year will have a cap set at 25% of their income from 2013.
HMRC found hundreds of millions of pounds of income tax is avoided by using legal loopholes to reduce their bills. The main methods included writing off business losses, offsetting the cost of business mortgages, and borrowing on buy-to-let properties - all against their income tax bill. Others took advantage of tax relief on donations to charity.
"I was shocked to see that some of the very wealthiest people in the country have organised their tax affairs, and to be fair it's within the tax laws, so that they were regularly paying virtually no income tax. And I don't think that's right," Mr Osborne told The Daily Telegraph. "I'm talking about people right at the top. I'm talking about people with incomes of many millions of pounds a year. The general principle is that people should pay income tax and that includes people with the highest incomes."
Charities have warned that limiting tax relief on donations will reduce philanthropic giving. But Mr Osborne said: "I was very clear in the Budget that we are specifically looking at making sure we are still encouraging philanthropy and charitable giving. But that is a specific issue we can deal with."
Mr Osborne has been criticised by Labour for cutting the top rate of income tax from 50p to 45p, in a move that will cut the tax bills of people earning more than £150,000 a year. But he said the 50p rate introduced by the last Labour government was "spin over substance".
"You produce a press release which says Britain has a 50p tax rate while you preside over a tax system where some people are paying zero per cent tax," he said. "I've come up with a Budget that has reduced the 50p rate to 45p, so we don't have the highest income tax rate in the world. But I've also asked people who are currently paying zero to pay income tax."