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IFS sees increasing concentration of highest earners

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Research carried out by the IFS into the top 1% of UK income tax payers indicates this predominantly male group becoming increasingly concentrated in London and the South East of England, with partnership and dividend income growing as a proportion of their income.

The IFS briefing note, ‘The characteristics and incomes of the top 1%’, is taken from HMRC data based on income tax records from 2000/01 to 2015/16. It shows this high-earning group of individuals receiving around 14% of national income and paying 27% of all income tax, as well as a significant share of other taxes.

This group is becoming increasingly concentrated in London and the South East, with the proportion living in London alone rising from 29% to 35% between 2000 and 2015.

The median UK income tax payer in 2014/15 had a personal taxable income of around £22,000 a year, while taxable income of £51,000 a year would place individuals in the top 10% of income tax payers.

Individuals with a taxable income of £162,000 (around 310,000 people) would be in the top 1% of income tax payers nationally, while for taxpayers living in London, a taxable income of £300,000 would be needed to place them in the top 1% of that geographical group.

While employment income accounts for about 60% of the total income of the top 1%, over a quarter of this group earn their income in the form of partnership income (14%) and dividends (11%), which are taxed at lower rates than salary. Taken together with those whose main source is self-employment income (4%), the figures suggest that almost one-third of the top 1% are business owners, who make up only one-fifth of the overall workforce.

Partnership income is even more important among the top 0.1%, for whom almost a quarter of income comes from partnerships. The top 1% includes 7% of all partners, while 58% of all partnership income accrues to those in the top 1%. The proportion of partnership income in the top 1% grew steadily, largely at the expense of employment income, over the eight years leading up to the financial crisis, even though the total number of partners was falling over that period.

The shares of income coming from different sources have been extremely volatile since 2008/09 among the top 1%, which largely reflects variations in dividend income through forestalling in response to changes in tax rates.

The study also shows that the top 1% is a fluid group, with only half of the top 1% of income tax payers in one year likely to be in the group five years later.


Issue: 1454
Categories: News