Millionaires living in Britain to pay an extra £100,000 in tax

British residents earning a £1 million will pay an extra £106,000 in income tax in 2013, compared to what they pay now.

By then, the 50% higher rate of income tax will begin to really bite, raising an extra £80,000 from a millionaire’s pay packet.

The rest comes from pension contribution caps, cutting child benefit and other taxes.

The figures were revealed by Bloomberg News and were drafted by accountants specially commissioned by the firm.

Many financial firms claim London is now one of the least-preferred places to live and work by wealthy top earners due to tax erosion of their income.

Those that want to stay are looking towards tax avoidance exercises like converting income in to assets where capital gains tax will be paid rather than income tax.

Huge differential between top rates of taxes

Many City workers choose to divert their income in to share option plans for this reason.

The current differential between the top rates of capital gains tax (28%) and income tax (50%) is a massive 22%. The government has indicated that capital gains tax rates are unlikely to change for the life of the Parliament.

British expats or workers with UK pension rights who are leaving the UK permanently to live and work can opt for more tax effective pension arrangements via a QROPS offshore scheme.

Contributions in to a QROPS are not capped and pension savers have a far wider range of flexible investment options.

British residents who move overseas and consider a QROPS pension investment should follow the non-residency advice as laid out in the recent HM Revenue and Customs v Robert Gains-Cooper case. These guidelines say anyone leaving the UK should break all residency ties with the country.

The Bloomberg figures relate to a married couple with two children. The husband earns £1 million a year and the wife does not have any earnings.