The 50p tax rate is ineffective in raising revenue and encourages young wealth creators to hide their money abroad, a think tank has said.
The 50% rate of income tax on earnings over £150,000 per year, introduced as a temporary measure by then-chancellor Alastair Darling in 2010, is easily avoidable, the Centre for Economics and Business Research (CEBR) said.
The think tank claims in its report 'The 50p Tax: Good intentions, bad outcomes', that young professionals are able to use financial products, wealth management services and residency rules to circumvent the tax.
CEBR dubs one popular tax maneuver as the "Tax Yah", a play on words referring to wealthy youngsters' trend for taking so-called "gap yahs" earlier in their careers.
The "tax yah" is where people in the 50p bracket move abroad for a year mid-career, allowing them to minimize their income tax liability considerably.
However, though the 50p rate is ineffective as a revenue raiser, it pushes the UK tax system over a "psychological threshold" which erodes trust between the wealthy and the tax authorities, making them more likely to avoid tax, the CEBR said.
The CEBR said any taxation above 40% is likely to spark tax avoidance that actually costs the Treasury "billions of pounds" instead of raising it.
In August, chancellor George Osborne said he was reviewing whether the 50p rate could bring in the desired revenue for the Exchequer.
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