How will Local Income Tax affect the rich?

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There must be loads of Local Income Tax supporters reading Lib Dem blogs, so perhaps they can answer this question.

Given that so few of the super rich pay income tax, how will introducing a local version, as Vince Cable has suggested today, make the blindest bit of difference to them?

Answers below please.

3 thoughts on “How will Local Income Tax affect the rich?

  1. As someone who does not have a regular income, I must say I find the council tax a real bugger. OK, don’t feel too sorry for me, but do feel sorry for the elderly who have seen derisory increases in their pensions more than gobbled up by council tax rises.

    I have simply never been able to understand why we have these two totally different schemes for taxation. When it comes to roads, hospitals, etc., they are paid through progressive taxation, towards which I contribute little at the moment, though have contributed much in the past. But when it comes to local amenities, then it’s, “here’s your share of the tab,” with a rather bizarre progressive element to do with the size of the house you inhabit and may not even own.

    So on the face of it, I strongly support a local income tax. But then what do I know?

  2. Virtually no-one who is rich does not pay income tax, indeed, last time I looked the fairly small number of people earning over £100k a year paid 30% of total income tax revenues. It is pretty hard to escape income tax unless you can convincingly show that you don’t live here. There are real questions about LIT, but this isn’t one of them: it is progressive.

  3. James has correctly identified the big practical flaw with LIT

    The (bigish) practical problem with a local income tax is how you handle tax on savings. At the moment the banks deduct basic rate tax from all non-ISA savings accounts. If you don’t pay tax you can claim it back, if you pay 40% then it goes onto your self-assessment return.

    The problem is how do banks handle it when they don’t know what rate to deduct at – sure the banks have my address but it’s going to be a real pain for them to calculate the local rate for everyone.

    Now it’s not a huge issue for those people who get most of their income through salary as the income from savings will be a negligible amount by comparision – it is however for those whose income is largely derived from savings/investments.

    I suspect the answer will lie in continuing self-assessment which most higher tax payers will be submitting AIUI and working it all out retrospectively.

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