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When is your tax freedom day?
Thursday, 19 October 2017

If you have ever had the feeling that you spent half your working lifejust to pay tax, you are probably not far wrong.  What with income tax, nationalinsurance/social security, capital gains tax, VAT, council tax, excise dutiesetc, a considerable amount of our hard earned income is lost in tax eachyear. 

 

If you are lucky enough to be retired you are still faced with tax onyour savings, investments and pensions, not to mention the amount we pay in VATeach year.  Having paid so much tax allyour life, you will not want to pay any more tax now than you absolutely haveto - tax planning is an important part of protecting your wealth in retirement.

An annual study, The Tax Burden of Typical Workers in the EU 28,determines the "tax liberation day" for individuals working in each EUState.  Carried out by the InstitutEconomique Molinari, it measures and compares tax burdens across the EU todetermine a "tax liberation day", to show how much of a year's work is devotedto paying taxes.   While this study focuseson employees and how much tax and social security they pay, it illustrates thegeneral tax burden of each country and how they compare to each other. 

On average 2017 sees a respite from ever-rising taxes, for the thirdyear in a row, but it is very small.  Theaverage "real tax rate" for typical workers in the EU reduces from 44.96% lastyear to 44.8% this year.  Taxes remainnearly 1% higher than in 2010.

Looking ahead, the report highlights that Europe's population is aging,resulting in higher pension and health care expenditure for governments.   This does not bode well for future tax cutsas governments will need to raise revenue - as the population ages, there areless people in employment to pay for these costs.  Only 45.4% of EU citizens were in the labourforce in 2016.  The report concludes that"budget cuts and economic growth remain workers' best hopes against taxincreases in the near term".

 

Tax freedom day is the day each year when you finally stop working topay tax to the government, and start earning money for yourself.  

According to the study, Spain's tax freedom day fell on 8thJune.  This means that for 159 days ofthe year, every cent earned by the average Spanish employee was taken by thegovernment in tax.  

This is the same as last year, and a long way off the 19thMay tax freedom day we had in 2011.

The average gross average salary in Spain is €34,111, butafter taxes people are only left with €19,3337 to spend on themselves.  The "real tax rate" in Spain is 43.31%.

The country with the latest tax freedom day this year is once againFrance. Its day remained the same as 2016 at 29th July, with a realtax rate of 57.41%.  Cyprus continues tohave the earliest tax freedom day with 27th March, followed by Maltawith 19th April, Ireland with 26th April and the UK with9th May.  

According to this study, the UK's tax freedom day remains the same aslast year, with a real tax rate of 35.08%.

Many countries across the world calculate their tax freedom day, thoughit tends to be private institutes which do this, rather than thegovernment.  They use differentmethodologies, resulting in different dates for the same country.

In its calculations, the Institut Economique Molinari looks at incometax, social security contributions and VAT.  

In the UK, the Adam Smith Institute (ASI) measures the entire tax take,including taxes that do not come directly out of the earner's pocket.  It calculates that the UK's tax freedom dayfell on 11th June, six days later than last year, and "thechancellor gobbles up the first 162 days of our earnings - from every source". 

These remain taxing times for taxpayers, and not just for workers asretirees are also faced with higher taxes. And of course there is no average person, and higher earners willgenerally have a later tax freedom day. 

In many cases, however, there are steps you can take to lighten your taxburden on your capital investments and pensions. While we all have to pay ourshare of taxes, do not risk paying more than you have to.  Seek specialist advice on the compliant taxmitigation opportunities available in Spain and UK for your investment assets,you may be surprised at how you can improve your tax situation. 

David Bowern, Partner, Blevins Franks
Email:
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Tel: 952 809 212

We upload newfinancial articles for expatriates each week. Visit our website www.blevinsfranks.com 

 

 

 

 

 

 

 

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