The UK government’s pre-budget report has confirmed that a substantial tax burden will be levied on the county’s highest earners in 2010, as the country’s finance minister, Alistair Darling, unveiled plans for next year’s budget.

As expected, those with high earnings - those that earn over £150,000 ($243,000) a year - are still set to be taxed 50 per cent on income from April 2010.

“People are reacting by taking steps to speed up receiving income or reducing their income. Many of our non-domiciled clients are seriously considering leaving the UK altogether, if they have not already done so, and it is clear that London’s pre-eminence as a financial centre is at serious risk,” said Louise Somerset, tax director at RBC Wealth Management.

The PBR also includes well-publicised measures intended to curb bankers' compensation, with a 50 per cent tax - against the bank, not the employee - on bonuses over £25,000.

While this is likely to cause anger, it is not clear whether a one-off tax would trigger an exodus of talent from the City. Indeed, even with a pledge to introduce further anti-tax avoidance measures, it is possible that tax planners are already ahead of the curve.

However, Chris Groves, partner in the wealth planning team at international law firm Withers, says his firm has identified a hidden bonus “bombshell” in the small print that could have more wide reaching consequences.
 
“An unexpected bombshell in the technical notes is that these provisions will not only apply to those banks supported by the taxpayer over the last 18 months but to any institution authorised by the FSA. This is of much wider effect and will include hedge fund and private equity fund managers, investment advisors, brokers and also many family offices who have not been in receipt of taxpayer support,” he said.

Unexpectedly, capital gains tax was not raised. While this is good news for holders of stocks and shares, the motivation was to protect small businesses.

Targeting high-earners is part of the finance minister’s plans to reduce the national debt - currently at £180 billion - and finance a government spending deficit of 13 per cent. However, the chancellor used the PBR to raise his public borrowing forecast by £5 billion over the next three years.

While there has been much discussion of whether UK economy would be damaged by punitive taxes on the upper tiers of the financial services industry and its clients, less has been said about the importance of property.

“The Stamp Duty Land Tax holiday for properties with a value of up to £175,000 will end on 1 January 2010, as previously planned. This is a missed opportunity for the revival of the UK property market.  An extension of this holiday, together with a substantial increase in the limit below which it takes effect, would have cost relatively little, but could have inspired enormous confidence,” said Tim Gregory, partner in the private wealth group at accountants Saffery Champness.