In recent years, Britain has attracted a large number of the world's super-rich—thanks partly to the favourable tax regime. But politicians of left and right are now starting to wonder if it's possible to increase the tax take on the wealthy without driving them abroadby David Goodhart / August 1, 2007 / Leave a comment
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Earlier this year, an IMF paper declared Britain to be a tax haven. The comment passed largely unnoticed at the time, but the recent attention that has been focused on private equity companies has moved the issue of the taxation of the “super-rich,” as well as legitimate tax avoidance, into mainstream political debate. The favourable personal tax arrangements for private equity executives and other high earners—many in the financial services sector—stem in part from Gordon Brown’s decision back in 1998 to reduce the capital gains tax on the sale of business assets to a mere 10 per cent (if the asset had been held for ten years or longer) in order to reward risk. But the low tax bills of some of the very rich can also be located in historical arrangements like the non-domicile status of some rich foreigners (or people who can claim they are foreigners) living in Britain, and the sheer inventiveness of the tax avoidance industry, with its use of trusts, offsetting losses, offshore tax havens and so on.
This is an old subject, but it has been given a new twist in recent years by the growing importance to the British economy of the success of the financial services sector in general and the City of London in particular. Combined with other trends, such as globalisation and the rise of “winner takes all” markets in top talent, this has made Britain a magnet for a large number of the new super-rich.
To some, this is evidence of the success of an implicit deal between successive governments and the City. Governments have signalled to the City and its mobile top earners: we will flexibly regulate your activities and provide relatively favourable personal tax terms if in return you will bring or keep your business in London. But following recent revelations about the generous tax regimes for private equity executives, politicians of both right and left are asking if this “pact” needs some renegotiation, and if it is possible to increase the tax take on at least some of the super-rich without losing their business.
Who are the super-rich?
In the past 20 years, the number of very rich people in Britain has risen sharply. There are around 30m incomes in Britain. The top 10…