Some of the highest earners pay effective tax rates far lower than the headline rates of Income Tax and National Insurance, driven by structural factors in the tax system such as lower rates of Capital Gains Tax (CGT), finds a new report.
Using de-identified administrative tax data from HMRC, the report, by researchers at the Centre for Analysis of Taxation (CenTax) [1] and funded by the Nuffield Foundation, analyses the total remuneration of the UK’s highest earners, including their capital gains as well as income.
Looking at effective average tax rates, the researchers find that in 2022 [2]:
- Tax rates increase across most income groups, but fall among the highest earners, dropping to 37% for the top 1%, 34% for the top 0.1% and 30% for the top 0.01% [3].
- Among the top 0.01%, only one in ten pays close to the headline rate of 47%, while a quarter pay 20% or less. Changes to CGT rates and reliefs since 2022 mean this is likely to have risen to 23%.
- Average rates paid by the top 1% have increased since 2008. In contrast, the average rate paid by the top 0.01% fell from 37% in 2008 to 33% in 2022.
Reforms to the tax system implemented since 2022 will have gone some way to mitigating these disparities, but major structural issues remain, the researchers said.
The report outlines several reforms open to the Government at the next budget that could reduce some of the variation in marginal rates while raising billions in revenue and removing existing economic distortions:
- Structural reform of CGT and equalising rates with Income Tax would increase revenue by 62%. Based on the latest available OBR forecast for capital gains, this implies additional revenue of £19.7 billion in 2030.
- Applying an equivalent of Employer National Insurance Contributions (NICs) to partnership profits would raise £2.1 billion in 2030.
- Applying an equivalent of Class 1 NICs to investment income such as rental, savings and non-dividend investment income could raise up to £4 billion in 2030.
The report also highlights options to reduce the highest marginal rates that currently limit growth:
- Removing the £100,000 childcare cliff-edge, which by 2030 is estimated to result in 12,000 parents holding their incomes down, would cost £640 million [4].
- In 2022, this cliff-edge resulted in 3% of lower paid partners of individuals earning just over £100,000 leaving the workforce, with 90% of those partners being women.
Andy Summers, Director of CenTax and Professor of Law at the London School of Economics and Political Science (LSE), said:
“The assumption that our tax system is already steeply progressive only holds for some top earners and is frequently not true at the very top. Effective tax rates amongst those in the top 0.01% vary wildly and on average declined between 2008 and 2022, driven largely by changes in Capital Gains Tax.”
Arun Advani, Director of CenTax and Professor of Economics at the University of Warwick, said:
“By creating inequalities across individuals with otherwise similar incomes, the current tax system is getting in the way of growth – encouraging individuals to chase low rates rather than working in the most productive way. While we don’t take a view on what the Government should do with any additional revenue raised through these reforms, not doing them means limiting growth while having to raise the same money elsewhere.”
Anvar Sarygulov, Research Grants and Programmes Manager at the Nuffield Foundation, said:
“Too often the debate around taxes on the wealthiest in our society revolves around simplistic rhetoric and solutions. This evidence shows that those wanting to raise taxes at the top have several options that would make the tax system fairer and simpler, at the same time as raising significant revenue for the government.”
ENDS
Notes to Editors:
- The Centre for the Analysis of Taxation (CenTax) is an independent research centre dedicated to improving public understanding of tax policy and helping to design a better tax system. This report draws together the findings of a major project funded by the Nuffield Foundation (WEL/FR000023787), in which researchers used de-identified taxpayer data to study the characteristics and behaviours of the UK’s top earners.
- All analysis is based on tax years. For example, 2030 refers to the 2029/30 tax year.
- Considering total remuneration, which includes taxable income and capital gains, in 2022 to make it into the top 1%, 0.1% or 0.01% of taxpayers, an individual would have needed to earn £173,000, £862,000 or £4,999,000 respectively.
- Since 2010, all parents of 3- and 4-year-olds in England have been able to claim 15 hours a week of free childcare for 38 weeks of the year. Since 2017, working parents of 3- and 4-year-olds have been able to claim a further 15 hours, provided that neither parent expects to have income above £100,000. Since 2024, this entitlement has been gradually expanded to cover a wider range of ages.
- The full report, Taxes at the top: Understanding what high earners pay and options for reform, authored by Arun Advani, Helen Hughson and Andy Summers, is published by CenTax and will be available at https://centax.org.uk/taxes-at-the-top-understanding-what-high-earners-pay/ at 00:01, 23 September 2026.
- This work contains statistical data from HM Revenue and Customs (HMRC) which are Crown Copyright. The research data sets used may not exactly reproduce HMRC aggregates. The use of HMRC statistical data in this work does not imply the endorsement of HMRC in relation to the interpretation or analysis of the information.
