London City Bankers tax

UK based banks appear willing to pick up the tab regarding the 50% one-off tax on bankers’ bonuses above £25,000 rather than move the burden to the bankers themselves.  However, the 50% tax on earnings above £150,000 due to kick in from April 2010 is more of a long term threat to London’s pre-eminence as a global financial centre.

Due to the one-off nature of the bonus tax, adjustments to the timing of the bonus payments are being made by certain banks in an attempt to side-step the tax or partly reduce the impact. HMRC would likely view this as avoidance so the success of such tactics is debatable. 

The 50% tax rate  from April 2010 on earnings above £150,000 is more worrying for the long term viability of London as a global financial centre.  A typical banker earning £1 million will soon have to pay more than £477,000 in income tax and £14,000 in national insurance contributions, taking home just £509,000 in net pay. 

However, resident but non-domiciled individuals have some options at their disposal.  It may be possible to set-up “dual contracts” and take advantage of the concessions available to non-doms by paying the £30,ooo Remittance Basis Charge but not remitting foreign earnings to the UK.  For domiciled individuals it might be possible to bring forward bonuses, dividends and other remuneration so that these are taxed at 40% instead of 50%.  Pension planning is also a good way of reducing the impact of the tax.

However, such planning will be on HMRC’s radar and it is important to seek good professional advice before implementing any proposals.