The UK government says it will cut the top rate of income tax to 45 per cent from April 2013 as part of a range of measures, some of which will hit wealthy individuals.

The UK government today cut the top income tax rate of 50 per cent to 45 per cent on annual earnings of £150,000 ($237,500) or more from April next year, as it set out its annual budget plans to lawmakers in parliament.

The tax cut had been widely expected due to budget leaks in recent days.

The 50 per cent tax rate has been controversial; it was introduced by the previous Labour-led government in the run-up to the general election of 2010. The Conservative/Liberal Democrat coalition government has already hinted that it was temporary and would be scrapped at some stage.

The wealth management industry and its clients were focusing closely on the issue. The UK’s top tax band is one of the highest in the Group of 20 industrialised nations, UK finance minister George Osborne told parliament, adding that it has caused “massive distortions”.

“No Chancellor (finance minister) can justify a tax rate that damages the economy and raises next to nothing,” Osborne said when explaining that it has only generated a third of the £3 billion that was initially forecast.

At the same time, Osborne said that he will increase the tax take from the country’s wealthiest by five times each year, chiefly by raising taxes on property valued at £2 million and above.

The rate on property bought through companies will be raised to 15 per cent, while the regular stamp duty will be raised from 5 per cent to 7 per cent. Osborne said that he will not hesitate to act retrospectively if people find ways to avoid it.

Knight Frank, the UK real estate agent, said that the new rate could raise £344 million in additional revenue for the government but that the final uplift in revenue is likely to be far lower as the calculation assumes no change to purchaser or vendor behaviour.

“We were told it would be a Robin Hood budget; if so, it is prettily presented," said Sophie Dworetzsky, partner in the wealth planning team at international law firm Withers.

Osborne: tax avoidance is “morally repugnant”

The finance minister also announced that corporation tax will be reduced by an additional one percentage point from April 2012 to 24 per cent. The government aims to further cut the rate to 22 per cent from April 2014. This will make a big difference for many high net worth individuals that are still running businesses.

To ensure that the bank levy raises £2.5 billion each year, it will be raised to 0.105 per cent from January next year, only a year after it was increased from 0.078 per cent to 0.088 per cent.

The government will also introduce a limit on all uncapped income tax reliefs. For anyone seeking to claim more than £50,000 of relief, a cap will be set at 25 per cent of income.

While announcing the budget to parliament, Osborne said that the public sector net debt will peak at 76.3 per cent in 2014/2015. Government borrowing will be £126 billion in 2012 and fall to £120 billion in 2013, falling to £21 billion by the 2016/2017 financial year. He has previously made public that he will miss his initial target of eliminating the budget deficit before the next general election in 2015.

Osborne also said that the government will consult on a general anti-avoidance rule (GAAR) targeted at artificial and abusive tax avoidance schemes with a view to bringing it into force next year. The Chancellor said that he finds tax avoidance “morally repugnant”.