Premiership Football Stars To Sidestep UK's 50% Tax

by Robert Lee, Tax-News.com, London

04 June 2009

With the English football season having drawn to a close, the game’s top stars are now turning their attention to affairs of the financial variety, specifically how to avoid the new 50% top rate of income tax.

The new top tier of income tax will affect taxpayers earning more than GBP150,000 a year and is due to come into force from next April. However, with some of the highest paid Premier League players receiving salaries approaching GBP150,000 per week, it comes as no surprise that many are now consulting with their tax and financial advisors to devise ways to avoid what will be, for them, a substantial tax hit.

The average Premiership footballer currently enjoys a weekly wage of about GBP70,000, or well over GBP3.5m per year. An increase in the top rate of tax to 50% would mean them paying in excess of GBP300,000 more in tax annually. But players at the top of end of the pay scale will, naturally, face an even bigger income tax bill. For example, Manchester United’s Cristiano Ronaldo, who earns a reputed GBP125,000 per week, would pay an additional GBP670,000 per year in tax as a consequence of the 50% bracket.

There are several ways open to wealthy taxpayers to mitigate high rates of income tax. For example, pay could be sheltered from income tax through property and other investments. Indeed, this is a tactic already employed by many well-remunerated footballers, some of whom have built large property portfolios. Some players have also invested into film partnerships to take advantage of a tax relief scheme offered by the government to encourage foreign producers to shoot films in the UK.

Another more controversial scheme which is reportedly being discussed by players, their advisors and football clubs is the use of interest-free loans to pay part or all of a player’s wages. Since employer-provided interest-free loans are treated as a benefit-in-kind by HM Revenue and Customs (HMRC), the beneficiary employee is taxed only on the benefit of not having paid interest. Tax experts suggest that this could allow footballers to pay as little as 2.5% in tax on an interest-free loan of GBP1m. The loan would, however, be treated as income after being written off by the club. But, with the Conservative Party (who are widely tipped to win the next general election, due no later than mid-2010) indicating that they would cancel the 50% rate and restore the 40% top band, tax savings could still be realised.

Another possibility is that players could simply vote with their boots and seek transfers to clubs in other European leagues where taxes are less onerous. For example, foreign players competing in Spain’s top division for up to six years pay a top rate of income tax of 25%. In France the top rate is 40%, while in Germany taxpayers are subject to a 45% top rate of tax. In Italy, the top income tax tier is 43%.

If only somebody had told poor old Andrey Arshavin, the tricky Russian midfielder who has just joined London’s Arsenal football club, a bit sooner. When learning how much tax he would be paying on his GBP80,000 wages, he was said to have received an “unpleasant surprise.” His request for an immediate pay rise to compensate for the higher tax rate seems to have fallen on deaf ears, however.

“My advice to other Russian players who may move to England in the summer is to take contract matters more seriously,” he said, according to The Times. “It’s important to understand clearly and in detail what money you are going to get and what taxes to pay.”

Perhaps his best move would have been to stay at his former club in St Petersburg. Russia has one of those famous flat taxes, where you pay one rate (in this case 13%), regardless of how much you earn.

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