Is Britain on the verge of having a tycoon tax? It rather looks like it. The Budget suggested that from next year, if you want to use more than £50,000 of tax relief from uncapped sources (ie, not including Isas, pensions and the Enterprise Investment Scheme (EIS)), you can’t take a total of more than 25% of your income.
That effectively introduces a minimum marginal tax rate of 30% for 40% taxpayers and 33.5% for 45% taxpayers. That’s a minimum tax rate as far as I can see.
It is still very unclear how it might work, but it looks like it might end up a little like the US Alternative Minimum Tax (AMT) which kicks in at 26% or 28% depending on marital status. This – set up in 1969 to grab the 154 people with incomes over $200,000 paying no tax at all – basically means that taxpayers have to do two calculations – one seeing what their tax rate would be if they used every deduction they can get their hands on and then of their AMT.
Then they pay the higher of the two. Around four million Americans currently pay tax at the AMT. There’s a way to go with the idea here – the charitable sector is already up in arms; it isn’t 100% clear which reliefs will be caught in the net; and all the capped reliefs will bring the eventual minimum rate down.
But it looks to me rather like Nick Clegg has managed to sneak in pretty much exactly the kind of tycoon tax he said he wanted. Well done him.