Talking Points

Around the World in 80 Taxes

Taxes in this world differ a lot. That’s why Google and Facebook base their European operations in Dublin, why Russian Oligarchs form shell companies in the Cayman Islands, and why the extent and quality of public services vary between countries.

Looking at total tax revenues per GDP (otherwise known as tax burden), OECD countries have averaged around 33.3% over the past 20 years. Germany and France skew higher, collecting between 38% and 45% of GDP in tax revenues, while Mexico is much lower, at 11% to 17%. The United States’ tax burden stood at 25.5% in 2019, having decreased from 28% in 1998.

How a nation constructs its tax system often relates to tradition, governance, and the type of political system in place. Here are some key examples.

France

L’Hegaxone’s tax burden sat at 45% in 2020 – enough to make any libertarian red in the face! That puts it 2nd of 38 OECD countries for tax burden, with Denmark out in front. Increased social security contributions, payroll taxes, and property taxes (vs. the OECD average) is what pushes France up to 2nd – though interestingly the French exact a lower proportion of tax revenue on personal income, and on corporate income and gains.

France’s ‘social charges’ (contributions sociales) consist of general social charges, pension contributions, old-age insurance contributions, and contributions to healthcare and unemployment benefit. They are taxed at a flat-rate percentage of an employee’s total gross earnings, with no lower/higher tax bands, and with no tax-free allowance. These contributions can be high for businesses and self-employed workers (as high as 42% for the latter in some instances), though at 24.8% for most, the income of a typical working family is similar to the OECD average.

The great advantage of France’s social charges is access to an extensive social security system, with universal state healthcare, high state pensions, generous maternity and paternity packages, excellent childcare and other family benefits, and assurances for illness, disability, and unemployment.

Germany

Often lauded for its rent controls and coalition governments, Europe’s heart of efficiency had a tax burden of 38.3% in 2020, compared with a 33.5% OECD average, ranking it at 11th out of 38 countries. It skews even higher than France for social security contributions and, unlike its neighbour, taxes more on personal income, profits and gains, while taxing property and goods and services less than the OECD average.

Like France, all that money invested in its social security system means Germany offers an elaborate safety net for its citizens, including healthcare, long-range nursing care, pensions and unemployment. Healthcare is provided via mandatory health insurance, with around 86% of the population enrolled. The first iteration of the scheme was established in 1883 by Chancellor Otto von Bismarck – it is credited as the first social health insurance system in the world – and it influenced the foundation of France’s own universal healthcare provision.

United Kingdom

According to Hall & Soskice’s Varieties of Capitalism (2001), Germany is a coordinated market economy (CME), whereas the UK is a liberal market economy (LME). An LME is characterised by its competitive market arrangements, competitive inter-firm relations, unequal income distribution, and employment conditions that skew towards full-time/general skill and short-term/fluid jobs. In contrast, a CME has non-market arrangements, collaborative inter-firm relations, a more equal income distribution, and employment conditions that skew towards shorter hours/specific skill and long-term/immobile jobs. The authors also identify ‘Mediterranean capitalism’ (France, Spain, Italy etc.), which are (sort of) a hybrid of the two.

I would argue that the type of capitalism practiced in each country influences its tax system, and in the UK we experience a lower tax burden than Germany, for instance – 32.8% vs. 38.3%. We can see the UK’s ‘freer’ approach to tax play out in the OECD statistics.

Immediately, we can see that UK social security contributions are lower than the OECD average – and 18 points lower than Germany. Where the UK skews higher than average is tax on personal income and property.

One could argue that, in comparison with France and Germany, lower social security contributions affect the service provided by the state to UK citizens. In 2015 it was found that UK family benefits were in line with the middle to lower end of the range for other wealthy countries. Further, the UK’s focus on the family means less support for people without children when compared with the mixed-policy approach of other wealthy countries. While both sides of the House of Commons agree that the NHS is a great British achievement, the German healthcare system has more doctors and hospital beds per patient, and much lower waiting times for operations. On the other hand, you could argue that the UK’s reduced ‘safety net’, so to speak – and the fact that it is an LME, rather than CME – creates a more competitive environment, fostering hard work and innovation, but that really is an argument for another time!

United States

With a tax burden of only 25.5%, the US ranks 32nd of 38 OECD countries. Nicknamed the ‘Land of the Free’, its tax system appears to reflect this moniker somewhat, with zero value added taxes. Like the UK, its social security contributions rank lower than the OECD average, while taxes on personal income, profits and gains skew very high.

When he was elected president, Donald Trump claimed that “America is one of the highest-taxed countries in the world” and proceeded to announce his tax reform plan. While you can measure tax in different ways, the OECD tax burden rating suggests Trump was wrong. While the chart above shows that much of US tax revenue comes from personal income, profits and gains, Americans do not face the highest tax rate in the world. The US top rate of income tax is 39.6%, far behind Finland (57%), Japan (56%), Denmark (55.9%), Sweden (52.9%), and the UK, France, and Germany (45%).

Monaco

Yacht rock

There is no OECD chart for this one because it is a certified tax haven. Home to Lewis Hamilton, Bono, Björn Borg, Max Verstappen, Ringo Starr and Lily Safra, the tiny island country offers a high quality of life and excellent education and medical systems. Monaco does not tax personal income, capital gains, or property (apart from a 1% tax on rentals).

Other states are well aware of individuals’ use of Monaco for tax evasion purposes. French nationals are subject to France’s income taxes if they are a Monaco resident (unless they became one before 1957).

Monaco not your thing? Try some of the Earth’s other tax havens – the Cayman Islands, Switzerland, Luxembourg, Singapore and the British Virgin Islands and more!

While we are about navigating the tax system in the best possible way for our clients, we are not about tax evasion! If you’d like help with your business finances, get in touch today!

7 Weird & Wonderful Tax Facts

I was going to start this blog with a quip about how tax isn’t a popular topic, but a quick search on Google Trends shows that it ranks as highly as ‘holidays’, and above ‘shoes’, ‘music’ and ‘tennis’ for search interest! So tax is actually quite a popular topic. Well, since everyone’s clearly so interested in the subject, here are some weird and wonderful facts about it.

The non-doms con’s on

Someone registered as non-domiciled with HM Revenue and Customs is tax resident in the UK but is not required to pay UK tax on income and capital gains earned overseas. This hit the headlines in April 2022 when the press called into question the non-dom status of Akshata Murty, the wife of UK Chancellor Rishi Sunak. Introduced in 1799 by King George III when Britain was fighting France, non-dom status initially sheltered those with foreign property from the UK’s wartime taxes. It then became a handy way for colonialists to keep all of their overseas income, while still supporting the British Empire. 

These days, non-doms report their overseas earnings in a tax return, opting for “remittance basis”, meaning they only pay UK tax on the income or gains brought to the UK. Annual charges apply after a certain amount of time – £30,000 if the individual has been in Britain for seven of the past nine tax years, and £60,000 if in residence for 12 of the past 14 years. In response to the Murty scandal, the Labour Party have pledged to close Britain’s tax loophole, but not without debate. Some argue – including former Shadow Chancellor Ed Balls – that closing the loophole would cause a net loss in revenue for the UK due to individuals moving elsewhere.

Tax-free spoils of war

The Russia-Ukraine war is no laughing matter, but the Ukrainian authorities raised a few wry smiles when they declared that any seized Russian tanks need not be declared on tax forms.

“Have you captured a Russian tank or armoured personnel carrier and are worried about how to declare it? Keep calm and continue to defend the motherland!” Ukraine’s National Agency for the Protection against Corruption (NAPC) said.

Big tech gives back

It’s common to hear grumbles about multinational companies not paying corporate tax, with the names of Amazon, Facebook, and Starbucks often thrown around. In 2020 though, Google agreed to pay £183m in back taxes to the Irish government. This was part of a move by Alphabet, Google’s parent company, to abandon its previous strategy of moving revenues made in Europe offshore to tax havens, like Bermuda, which had reduced the company’s overseas tax rate to 2.4% (as revealed by Bloomberg).

You’d have to pay me to sport that moustache!

Peter the Great’s beard tax

Russia gets another mention – this time for more light-hearted reasons. This strange tax began in 1705 in Tsarist Russia as part of a wider initiative to reinvent Russian culture. Priced at a few kopecks for peasants, or a hundred roubles or more for nobles or military officials, this tax aimed to encourage the clean-shaven look the Tsar had witnessed on his European travels a few years prior. Subjects were also ordered to wear French or Hungarian jackets, rather than their traditional overcoats, with tailors fined for continuing to sell Russian styles. The Tsar’s men would even cut citizens’ coats down to size if they were too long!

Devout Orthodox Christians were not happy with the tax, believing that man was created in the image of God, including his beard, and therefore to shave it was a sin. Such discontent led to a revolt in Astrakhan, which was brutally crushed, and the tax continued. Peter would continue to feud with the church throughout his reign. He formed a club called the “All-Jesting and All-Drunken Synod of Fools and Jesters” where members dressed as cardinals and bishops and staged mock marriages and ceremonies. Sounds silly, but in such pious times, this friction between church and state was a serious matter.

The Window Tax

Have you ever looked up at an old building and thought “there really should be a window there”. Often you will see a bricked-up space where there clearly was a window before. There are no doubt a few instances in Hamilton Blake’s hometown of Swaffham – an old Norfolk market town. The tax was introduced in 1696 and sought to levy more money from the rich, who had more windows, than the poor, who had less. This worked for the rural poor, but unfairly taxed those on lower urban incomes who lived in multi-windowed tenements, which were counted as one dwelling under the terms of the tax, despite being subdivided between families.

What was initially conceived as a clever method of progressive taxation ran into problems when the rich started to block up windows to get under the lower tax threshold, and new buildings were increasingly built with insufficient windows. No definition of a window was set out, so even the smallest apertures could – and would – be taxed. This led to a further lack of ventilation, making residents more susceptible to outbreaks of typhus, cholera and smallpox. The tax had such an impact that, after a 1766 amendment to include properties with seven or more windows, England and Wales saw the number of houses with exactly seven windows drop by two thirds!

A room without windows is just a walk-in wardrobe darling!

Football wins

Now you’ve got this far, I should reveal that ‘football’ has about three times the search interest of ‘tax’.

Maybe tax should be taxing

Now this one’s from Wikipedia so take it with a pinch of salt, but apparently Adam Hart-Davis – the scientist/broadcaster who fronted HMRC’s “tax doesn’t have to be taxing” adverts – was dropped from his contract when he said in an interview that the tax system was in fact too complex. He said he thought a 30% tax rate should apply to everyone. While that would make things a lot easier for the Hamilton Blake team, we rather like the UK’s complex tax system – and enjoy advising our clients on how to best navigate it 😊

Top 10 Songs About… Money

It’s funny, musical artistry and financial advice do not often occupy the same space. Whether it’s rock stars splashing out in hotels, rappers’ buying eye-wateringly expensive gold chains, or pop starlets appearing at awards shows in seriously pricy dresses, the music world is known for its opulent glamour. Accountants… we’re more known for telling people when to stop spending!

Riffing on this theme, we thought we’d pull together our top 10 songs about money as a bit of fun, ahead of the Easter Bank Holiday.

Jamie T – If You Got The Money

Most people know indie brat Jamie T for the song Sheila, but he takes on the green stuff on this single from his debut album Panic Prevention. The chorus seems to be Mr. T wondering how much fun he’d have with a rich guy’s girl, if said rich guy gave him some of his vast wealth. The rest of the song is a spew of lyrics about him being broke, running around getting drunk and fighting… I think.

ABBA – Money, Money, Money

That zinging piano intro sets up the tension in this ABBA classic. Perhaps not the most poetically able pop band (likely due to English being a second language) ABBA sure make up for it with about seven hooks per song, and in this banger they rhyme ‘money’ with ‘funny’. Complete with references to Las Vegas and Monaco, the ABBA gals set out their goal to find a wealthy man. Certainly a fictional tale because all of ABBA became ludicrously wealthy – and justly so!

The 1975 – M.O.N.E.Y

Any 1975 fan will know that singer Matt Healy’s lyrics have this no filter intensity to them, and the band’s early songs are tales of being twenty-somethings in Manchester – all awkwardness, hedonism and young love. M.O.N.E.Y is about a character (presumably Healy himself) going out on the town and getting involved in some rather expensive illegal activities, let’s just say… It doesn’t go very well for him. A cautionary tale to spend your money wisely, if I ever heard one.

Pink Floyd – Money

A simple title, for a relatively simple song (for Pink Floyd at least) and definitely one of the more accessible tracks on their iconic album Dark Side Of The Moon. Roger Waters sardonically lists the perks of having money and impersonates the super-rich: “Money, it’s a hit / Don’t give me that do goody bullshit”. The rhythmic tape loops of cash registers, tearing paper and bags of coins weave this song into the album’s weird sonic tapestry.

It’s a gas

Dire Straits – Money For Nothing

With, in my view, the best guitar riff in this list, this 1985 track was a huge hit for the ‘Straits. The lyrics were inspired by the comments of a delivery man Mark Knopfler met in an appliance store in New York. This man thought that the MTV stars on that he observed on-screen within the store were paid stacks of cash for doing absolutely nothing, which Knopfler found interesting, jotting down the man’s comments there and then. I wonder if this man ever realised he’d inspired such a mega hit?

The Beatles – Can’t Buy Me Love

It was this one or Taxman (one of the few pop songs explicitly about tax), but I just prefer the simple message of this one – that money simply can’t buy you love. Paul McCartney, who wrote and performed lead vocals on the track, has never fully explained the song’s meaning, but has referenced the fact that material possessions can’t buy you what you really want. Though he did comment later that it should be called Can Buy Me Love when reflecting on the good life that his fame and fortune had granted him!

Rihanna – B**** Better Have My Money

The Barbadian songstress takes an aggressive tone on this trap-influenced song. It was allegedly written about her accountant that she sued in 2012 for causing her to lose $9 million within a year. In the video RiRi kidnaps an accountant’s wife because he’s refused to pay her! They do say arguments about money are the worst…

Kendrick Lamar Money Trees

Probably the cleverest rapper ever, ‘Kung Fu Kenny’ takes on the quest for wealth in this track off his first album, good kid, m.A.A.d city. In it, he describes how those in poverty strive to get rich quick, but lose their morals along the way, and how people within such communities struggle to make enough money to get out. This he contrasts with his own hard work to make it to the top of the music industry. 10 years on, Lamar has given back to his home city of Compton, CA in various ways, including donations to music, sports and after-school programmes to keep kids off the street. Good kid.

Lana Del Rey Old Money

Lana Del Rey has always channelled a bygone age in her music, with her 50s aesthetic. This song is all nostalgic references to Hollywood. “Cashmere, cologne and hot sunshine” – it’s the stuff of Mad Men, Great Gatsby, and the like; when people wore hats and drove big gas guzzlers and didn’t have Twitter.   

Parliament Wizard of Finance

“If I was a wizard of finance / Speculating every day on Wall Street / My dividends would be so tremendous, baby / Even Dow Jones would find it hard to believe”

Enough said.

The Office, Nearly 2 Years On

Pre-2020, I would have used the word hybrid to describe my bike, not my working week. Like anyone else in a full-time desk job, I would troop to the office five days a week, be this via bike, tube, or car, depending on which stage of my life we’re talking. Work from home arrangements were unusual, often for only one or two days a week, and were generally negotiated behind closed doors with managers for certain team members with extenuating life circumstances. Then, in March 2020, everyone got a piece of the action. In “it’ll all be over by Christmas” style, at first I remember colleagues discussing how it would be temporary, but then after weeks it dawned on us all that this was a seismic shift in working patterns. Like how workers two centuries ago had left their small workshops and flocked to factories in the cities, we were heading home, taking our office space into our own hands, though not voluntarily (at first).

And now, in early 2022, the work-from-home-first mentality has bedded in significantly for many office workers up and down the country. An ONS survey conducted in April 2021 found that 85% of UK adults homeworking at the time wanted to use a hybrid approach in future, with many large companies opting for this approach going forward. I would argue that, pre-pandemic, only lofty-headed futurists could have predicted such a change (at least in the near future), with so many companies still stuck in the 20th century concept of the office cubicle (as open-plan as things had become on the surface). For most, WFH policies had been by special arrangement, for special circumstances, and it was thought that productivity would decrease if workers were left to their own devices, without the watchful eyes of managers across the room. Not so – and this is what made the decision for many firms. Similar, or even increased, output sealed the deal for WFH.

The author, whose home office can spring up anywhere in the house…

Positives abound of course. The Economist reported on ‘digital nomads’ – young workers who seized on their newfound freedom and travelled through Europe, working from chalets, cottages, and seaside apartments. Parents, though initially phased by enforced home-schooling, have cut back on childcare costs and reclaimed commuting time. Suburban businesses also saw an increase in sales. Worker fatigue palpably decreased. Seizing on the more healthy work/life balance available, Sarah Healey, secretary at the Department for Digital, Culture Media and Sport, has said how “wellbeing is at the heart of Civil Service culture”, and that she would soon meet with senior staff to discuss “what our priorities for 2022/23 should be to make us a healthier, happier civil service”. Other government departments have mandated workers to work from the office only 2-3 days per week.

There are downsides to all this sudden freedom though. The Atlantic argued that for those that have not built up strong social and professional networks, home-working can be alienating. The loss of interaction with work colleagues, who for many become their most regular day-to-day social interactions, has exacerbated widespread loneliness in the US. ‘Water-cooler moments’, once poked fun at by Dilbert and the like, are lost in the virtual office; the kind of casual conversations that stimulate innovation (ideas that cannot be scheduled to appear during a Teams call). I vividly remember one such breakthrough happening within my own marketing team last summer.  It is for this reason that Google offers free food to its employees and makes its offices as attractive as possible. Who knows… perhaps Facebook’s Metaverse will be able to stimulate innovation in virtual settings!

For Hamilton Blake, the biggest change to workflow has been the virtual connection with clients. Many are based in London, which called for regular trips to the city pre-Covid. Now though, a hybrid approach to interfacing benefits all – Hamilton Blake can spend more time crunching numbers, while clients retain their own flexibility. Face-to-face is still an option (and favoured for yearly reviews, for instance) but for monthly catchups, video calls are the norm. The lean towards virtual interfacing also opens up new recruitment options. North Norfolk, as beautiful an area as it is, does not quite have the geographical pull of London, and the company could now recruit workers fully remotely, if required.

“It’s a permanent change … I don’t think things will ever go back to the way they were.” These are the words of Jane Gratton, head of people policy at the British Chambers of Commerce. This sentiment is shared by many that I have talked to, with the 5-day in-office mandate an exception now. As the 2-year Great WFH anniversary approaches, firms – Hamilton Blake included – will need to assess their own individual employee policies and be aware of the benefits and risks to productivity and staff happiness.

Me? I’m going to jump on my hybrid and head to the office for a change.

Inheritance: Fail to plan and your planning to fail

Inheritance tax planning is often postponed or neglected in today’s society. In reality it is one of the more important processes as it helps to ensure that a persons loved ones receive the highest possible amount of an estate rather than the taxman. With inheritance tax currently sitting at 40% an estate with little to no planning could be giving nearly half of that value over to HMRC.

In reality a person’s estate is very unlikely to be made up of only liquid assets such as cash or stocks and shares. Therefore if, for example, the main value is in property or other high value items the beneficiaries may be forced to sell these types of assets in order to afford the inheritance tax payment due on the whole estate.

Below we have explained a few of the ways to lower the tax bill before and upon death.

Reduce the size of the estate

The first idea is a simple one; if the size of estate is reduced then, subsequently, the tax payable is reduced. The easiest way to take assets out of an estate is gifting. Gifting is one of the most important tools a person can use to mitigate inheritance tax and increase the value passed on to loved ones. If a person gifts assets to a beneficiary prior to death there is no tax to pay so long as the person gifting survives his or her gift by 7 years. If, unfortunately, the gift is not survived 7 years there is a sliding scale of relief available dependant on the length of survival after the gift.

Gifts should be used where possible, however, caution must be taken so that the person giving away assets does not leave themselves in a position where they are unable to enjoy life to whatever standard they would like. Extreme care will need to be taken with properties as if a person’s home is gifted to another and the donor continues to reside their then rent will be payable at the market value to the beneficiary which is taxable income.

All in all, however, gifts are a great way of moving assets out of a person’s estate and therefore reducing any inheritance tax payable.

Keep your company

With the number of small businesses always on the rise the amount of people owning large portions of companies which form part of their estates is also rising. Upon retirement a person may be tempted to liquidate small companies and therefore release any residual value from the company into their own possession. In some cases it can actually be of great benefit to leave the company as it is and to bequeath the shares upon death. In this instance the value of the business could attract relief via business property relief from IHT of up to 100% and therefore reduce the overall value of the taxable estate.

Increase your nil rate band

Currently every single person who is domiciled in the United Kingdom will receive a nil rate band of £325,000 upon death. This means that an estate is only taxable upon the value above £325,000. This seems like a lot, however, with rising house prices it often does not cover a person’s full estate. Often upon death a husband or wife will leave the entirety of his or her estate to the other which attracts no tax whatsoever regardless of value. The other important thing about this transaction is that the surviving spouse or partner also inherits the deceased’s nil rate band.

This creates a situation where the surviving party now has a nil rate band of £650,000 which means that this amount can be left via their estate tax free.

In addition to this, as of 2017, an extra nil rate band is available on main property if the total taxable value of the estate is under £2,000,000. This amount begins at £100,000 but will rise to £175,000 by 2020. This could, in some cases, create a situation where a person can pass on £825,000 worth of estate to family tax free.

Conclusion

Hopefully the above illustrates just how important planning can be in ensuring that your estate is steered to your loved ones without HMRC taking a large chunk first. Each person’s situation is individual and, therefore, will need tailored advice on the best ways to reduce inheritance tax.

If you, or a loved one, are currently in need of estate planning or just want to talk through how it could benefit you please contact us via this website or on 01760 336730 to arrange a meeting.