If you have ever had the feeling that you spent half your working life just to pay tax, you are probably not far wrong.
What with income tax, national insurance/social security, capital gains tax, VAT, council tax, excise duties etc, a considerable amount of our hard earned income is lost in tax each year.
If you are lucky enough to be retired you are still faced with tax on your savings, investments and pensions, not to mention the amount we pay in VAT each year. Having paid so much tax all your life, you will not want to pay any more tax now than you absolutely have to – 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 EU State. Carried out by the Institut Economique Molinari, it measures and compares tax burdens across the EU to determine a ‘tax liberation day‘, to show how much of a year’s work is devoted to paying taxes. While this study focuses on employees and how much tax and social security they pay, it illustrates the general tax burden of each country and how they compare to each other.
Tax freedom day is the day each year when you finally stop working to pay tax to the government, and start earning money for yourself.
According to the study, Spain’s tax freedom day fell on 8th June. This means that for 160 days of the year, every cent earned by the average Spanish employee was taken by the government in tax.
This is one day later than last year, but still a long way off the 16th May tax freedom day we had in 2011.
The average gross average salary in Spain is €33,984, but after taxes people are only left with €19,197 to spend on themselves. The ‘real tax rate’ in Spain is 43.51%.
There were income tax cuts in Spain the last two years, but this study shows that the tax burden is still quite high. The government’s budget plan for 2017 does not include any significant tax cuts. The 2016 budget will be extended for 2017, with some measures to increase revenue for the government. Wealth tax will be extended for another year; the IBI tax (Impuesto sobre Bienes Inmuebles) for real estate will increase and corporation tax will rise for certain companies.
The country with the latest tax freedom day this year is France, overtaking Belgium to the dubious honour of top spot. Its day remained the same as 2016 at 29th July, with a real tax rate of 57.67%. Cyprus continues to have the earliest tax freedom day with 29th March (and a real tax rate of 23.85%), followed by Malta with 18th April, Ireland with 30th April and the UK with 9th May.
Looking ahead, the report highlights that Europe’s population is ageing, resulting in higher pension and health care expenditure for governments. This does not bode well for future tax cuts as governments will need to raise revenue – as the population ages, there are less people in employment to pay for these costs. More than half the EU population (54.9%) were not in the labour force last year.
These remain taxing times for taxpayers, and not just for workers as retirees are also faced with higher taxes. And of course there is no average person, and higher earners will generally have a later tax freedom day. In many cases, however, there are steps you can take to lighten your tax burden on your capital investments and pensions. While we all have to pay our share of taxes, do not risk paying more than you have to. Seek specialist advice on the compliant tax mitigation opportunities available to you in Spain and UK.
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This article was written on the 08th of November, 2016.