Super rich earners receive a sixth of all UK income

The UK’s top 1% of the ‘super rich’ received a far greater, and faster growing, share of the nation’s income pre-crisis than previously thought, if capital gains are included in official statistics, according to new research

The research, a collaboration between the CAGE Research Centre at the University of Warwick, the Resolution Foundation and the London School of Economics, used confidential tax return data including taxable capital gains to build a picture of incomes across the UK.

In 2017-18, £55bn of taxable capital gains were recorded, more than double the amount recorded five years earlier when adjusted for inflation.

This was spread across 260,000 individuals (around 0.5% of adults in the UK), with an average gain of £210,000 each.

However, the team’s analysis suggested the majority (62% or £34bn) of the UK’s taxable capital gains in 2017-18 were received by just 9,000 individuals, who each made gains of £1m or more.

The total included £24bn of gains eligible for Entrepreneurs’ Relief and £2bn of ‘carried interest’ for fund managers.

On the basis that these gains are related to people’s work and so have more in common with employment earnings than passive investment returns, the report said they significantly change the distribution of income across the country.

It found that the income share of the top 1% in 2017-18 was 16.8% once taxable capital gains are accounted for, rather than 13.8% as previously thought.

The income share of the top 0.1% is also revised, up by 44% to 8.1% compared with the 5.6 % reflected in official figures.

The inclusion of capital gains also changes the picture on how income shares have changed over time, according to the report. It finds that the income share of the top 1% has grown by 3.1 percentage points since comparable data began in 1996-97 – twice as fast as previously thought.

However, the report notes that just as the value of capital gains fell sharply during the last recession, it is likely to have fallen sharply during the current crisis.

The report authors say that getting a more complete picture of the scale and distribution of income across the UK is vital if policy makers are to make informed decisions about living standards and tax policy, and call for official income data to include taxable capital gains, as well as other major missing sources of incomes, such as pension lump sums – which are also generally excluded but now total £25bn a year.

Dr Arun Advani, assistant professor of economics at the University of Warwick, said: ‘Official statistics on the impact of austerity suggest that everyone was “in the same boat.”

‘But our report reveals this is simply not the case.

‘When you take into account income from capital gains – the profits received on the sale of assets, including business shares – the top one per cent has in fact been doing rather well and inequality has been rising.

‘While the share of all income going to the top 1% has remained around 13% since 1997, once gains are included it rises to 17%, with the largest growth towards the very top.’

Who gains? The importance of accounting for capital gains

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