What, if anything, should replace the 50p income tax rate?

Accountants in London will remember that Nick Clegg and his Lib Dem party were all for keeping the 50p top income tax rate. Now it appears that they’ve had a change of heart and will support the removal of the rate, providing another tax on the wealthy is implemented to take its place.

Nick Clegg recently told the Prime Minister that he was not ideologically wedded to the top tax rate on people earning more than £150,000, but he would only support its abolition if measures were put in place to get larger revenues from the UK’s wealthiest inhabitants.

David Cameron has signalled that he is opposed to the introduction of new taxes on top earners, and several Tory MPS oppose new taxes on principle.

However, Vince Cable, the business secretary, recently confirmed that negotiations are underway to come up with a solution before the Budget. The Lib Dems now see a mansion tax as a sensible alternative to the 50p income tax rate. Mr Cable insisted that the wealthy have to pay their fair share of taxes and the mansion tax would be an economically sound way to ensure they did.

The Chancellor has already asked HMRC to work out how much additional revenue has been generated by the 50p rate and to work out whether tax avoidance measures have prevented it bringing in additional income.

Malcolm Rifkind, the conservative MP, argues that a mansion tax would hit middle class people living in London. If implemented, about 81% of the properties affected would be in the Capital and many would find the levy unaffordable.

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