Written by Canarian Weekly Business
IF you ever had the feeling that you have spent half your working life just paying tax, you are not far wrong. What with income tax, National Insurance, capital-gains tax, VAT, council tax and so on, a considerable amount of our income goes straight to the taxman, each year.
Even if you are retired, you are still faced with tax on savings, investments and pensions. Having paid so many taxes all your life, you will not want to pay more than necessary, and that's why tax planning plays such an important part in protecting your wealth.
Defining the tax burden of typical workers in the EU
For the last ten years, the Institut Economique Molinari has measured taxes payable across the 28 EU member states. While it focuses on employees, and the tax and social security they pay, it illustrates the general tax burden of each country, and how they compare.
The study calculates a “tax liberation day” for each country, the date on which an employee has earned enough to pay off all taxes for the year. It also identifies the average “real tax rate” for typical workers in each country (gross salary minus all tax liabilities).
2019's report reveals the average tax freedom day across the EU was 12th June, but there was a disparity of over 14 weeks. The difference between the lowest and highest real tax rate was more than double.
How did Spain fare?
Spain's tax freedom day fell on 8th June, placing it ninth in the rankings. Spanish employees worked for 159 days of the year, just to pay their tax bill. While this is the same as the last three years, it is a long way off the 19th May date, enjoyed back in 2011.
The average gross salary in Spain is €34,469, but, after the real tax rate of 43.31%, workers are only left with €19,541 to spend on themselves.
The country with the latest tax freedom day this year is, once again, France, with 19th July. Cyprus continues to have the earliest day, on 8th April.
What about the UK?
According to the study, the UK's tax freedom day again comes fourth, landing on 8th May, with a real tax rate of 34.94%. However, many think-tanks undertake their own research to calculate their country's tax freedom day, using different methodologies.
While the Institut Economique Molinari looks at income tax, social security contributions and VAT, the UK's Adam Smith Institute (ASI) measures the entire tax take, including taxes that do not come directly out of the earner's pocket. This approach places the UK's 2019 date three weeks later, on 30th May, the latest date since comparable records began, in 1995.
What does this mean for taxpayers?
The Institut's overall outlook is that ageing populations are putting pressure on pension and healthcare spending for governments. This does not bode well for future tax cuts; as the population ages and fewer people are employed, taxpayers are required to plug the gap. With under half of the EU's citizens in the labour force, the report concludes that “economic growth remains European workers’ best hope against tax increases, in the near term”.
These remain taxing times for taxpayers, including retirees. In many cases, there are steps you can take to lighten your tax burden, especially on capital investments and pensions.
While we all have to pay our share of taxes, cross-border taxation is highly complex; do not risk getting it wrong, or paying more than necessary. Take personalised, specialist advice on the compliant tax mitigation opportunities available in Spain and the UK.
All advice received from Blevins Franks is personalised and provided in writing. This article, however, should not be construed as providing any personalised taxation or investment advice.
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