Majority of super-rich pay no income tax

The dispute over the exploitation of tax loopholes by the super-rich deepened yesterday with the release of figures which suggest that only a fraction of those earning £10m or more in Britain pay income tax.

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HM Revenue and Customs figures released under the Freedom of Information Act reveal that only 65 people declared an taxable income of £10m or more in tax returns filed for 2003-04.

This compares with at least 400 individuals based in Britain whose wealth or direct income would allow them to make £10m a year or more. The discrepancy means that those who do not pay directly into Treasury coffers are using the highly developed - and legal - methods of tax avoidance to minimise their tax bill.

Quite how much money is being lost to the tax man is unknown but the loss to the Treasury could be between £700m and £1bn a year.

Vince Cable, the Liberal Democrat shadow chancellor, whose party this week published a six-point plan to increase the amount paid by the very wealthy in tax, said: "It cannot be right that people pay 40 per cent on relatively moderate incomes and pay 40 per cent inheritance tax and 3 or 4 per cent stamp duty but many of the super-rich pay next to nothing.

"What is so shameful is that the Treasury is aware of growing wealth inequalities but fails to update new information and that it is well aware of the abuse but refuses to act."

The latest statistics will fuel the debate over whether Gordon Brown's tax regime, which has made Britain a haven for the super-wealthy, is excessively generous.

Leading partners in private equity companies found themselves under the spotlight this week when they were asked by MPs to justify an effective tax rate of just 10 per cent on their earnings from multibillion- pound takeover deals, saving as much as £1bn in personal tax since 1990. One leading executive has said he feels uncomfortable paying less tax than his cleaner.

The income-tax figures cast further light on the potential extent of tax avoidance. The data collected by HM Revenue & Customs shows that just 40 people declared a taxable income of £10m or more in 2003-04, rising to 65 in 2004-05, the most recent year for which figures are available.

Research by the London-based Centre for Economics and Business Research predicts there will be 1.7 million millionaires in Britain by 2020, compared with the current level of 376,000. Among the legitimate tactics used to minimise tax is the use of offshore trusts, where assets are not subject to income or capital gains tax.

The Treasury last night insisted that its goal was a fair tax system.