Viewing posts categorised under: Income Tax

Income Tax Brackets Italy 2022

By Gareth Horsfall
This article is published on: 7th December 2021

07.12.21

Well, it’s the moment that we have all been waiting for. The announcement was made on the 25th November. The new income tax bracket bands (IRPEF) from 2022. Unfortunately, I have to report that they really are not going to make a big difference to most people, but some savings might be available.

I know I mentioned in one of my previous E-zines that there was also talk of a possible allowance being introduced as well, but this area is still being debated. The talk is that an allowance will not be forthcoming for everyone, but that they will merely extend or enlarge the current no-tax area. This is not the same as an allowance which everyone would receive regardless of their income; instead it is offered to those with lower incomes, in different classifications. At present the no-tax areas apply as follows:

For employed workers: €8145pa
Pensioners: €8130pa (this increases for the over 75s to €9000pa)
Self employed workers: €4800pa

** You would not be taxed at all if you were earning / receiving income equating to those figures exactly. However, the more that your total income increases over these figures, the more of the no-tax area that you lose. Hence distinguishing this from a tax allowance. It is more like a means-tested benefit ***

Remember that Italy also has its highly complex system of detractions and deductions which can help to reduce your overall tax bill further. This, with the changes made in the income tax rates, will also be under review, but I suspect it will still remain in some shape or form for the future. The complication here is always knowing what you are eligible to deduct and how. To keep on top of the current system of deductions and detractions, you almost need to make it a full time job, from tax deductions for installing a water filtration system in the house, to veterinary bills and expenses. Anyway, more on that as and when I know more myself.

For now, let’s concentrate on the fact that income tax rates have now been reviewed and subsequently will change for 2022.

Entrepreneurial progress?
I think that back in 2019, maybe earlier, I wrote an E-zine bemoaning the fact that Italy’s tax system was cutting off the opportunity for entrepreneurs and small business owners to go to the next level and start to create the next generation of SMEs (small to medium sized businesses), purely because of its taxation and ‘contributi’ system. My bug bear was that as soon as your income went over €28000 then Italy imposed a taxation of 38% on income earned, until total income exceeded €55000, when the tax rate increased again. This, in addition to the high level of social security contributions, was the equivalent of asking someone to run a marathon but chopping them off at the knees before they started, and as the marathon progressed (if they could even make it that far) then would start to chop more of the leg off as they progressed. Hence, why would you even start?

(I am exaggerating a little because for some years now there has been a tax regime for self employed people earning up to €65000pa where they can pay just 15% income tax per annum, but without the opportunity to offset any business expenses. Most small business people I know are on this regime, which is great, but what if you can, or want to, earn more than €65000pa and take your business to the next level?)

These were always the bigger questions. Well, thankfully, Sig. Draghi has used the cloak of Covid (or more likely the cloak of a serious amount of funding from the EU) to do something about this and has made changes to the income tax rates. However, let’s have a look at the current system of taxation before we look at the new.   IRPEF as things currently stand is charged as follows:

€0 – €15,000	23%
€15001 – €28000	27%
€28001 – €55000	38%
€55001 – €75000	41%
€75000+	43%

The biggest leap here being the move from 27% to 38% after €28000pa   In the shake up, we now go from 5 bands to 4 and the bands have been widened as follows:

€0 – €15000	remains at 23%
€15001 – €28000	will now go from 27% to 25%
€28000 – €55000	will fall from 38% to 35%

And the biggest change here is that from €55000 pa the rate will pass straight to 43%

What can be learnt from this?
I think the lesson from this change is very simple. One which I think fits into current world thinking. The individual earning more (in this case €55000pa) is now going to pay more tax and those on lower than €55000pa incomes, in Italy, are going to be incentivised to spend more with lower taxes. It’s not a stupid strategy in all honestly because people with less income will naturally spend the extra cash that is available to them. Those with higher incomes will normally siphon off surplus income into reserves (investments/pensions etc).
So, all in all Italy is doing what a lot of countries already do. And we are told that this is just ‘stage 1’ of the reformed income tax regime (essentially to get something over the line before the end of 2021), but more reforms are pending from 2022 onwards. As my classic phrase goes ‘I wait to be amazed!’.

  Summary
That all being said, for a lot of people it will mean some tax savings, especially those with income between €15000 and €55000. The full saving in these tax brackets will be €1070pa. Not to be sniffed at as the cost of utilities and food has increased substantially in the last year. For anyone else, you are not really going to see much change at all, and I suspect the system of detractions and deductions will continue for now to help anyone reduce their income tax liabilities even further. In Italy, it would seem, things happen piece meal and over a longish period of time. No one politician or political party really has the political clout to push such sweeping reforms as might be needed and get them put into place, even Mario Draghi. However, the ability to push through smaller reforms which make a big difference over time seems to be more the status quo. As usual, we bumble along and react to things as they happen and continue to enjoy the life that Italy affords us.

Download your tax guide to Italy

DETRACTIONS FOR INCOME TAX PURPOSES IN ITALY

By Gareth Horsfall
This article is published on: 4th December 2019

I am often asked which expenses can be detracted from income in Italy. These serve to reduce your potential tax liabilities.

Unlike a lot of countries where allowances are offered on a certain amount of income each year (e.g. the UK and the first £12500), Italy does not offer any such allowance, but instead uses a complicated system of detractions and deductions of certain living expenses. That list covers a multitude of items, such as eco bonus for re-construction work to your home, funeral expenses and medical expenses.

A new criteria that has been imposed as of 2020 is that a number of these must now be paid only by traceable means of payment (bonifico, bancomat or credit card). If they are not paid with one of these methods then they are not deductible.

The following table, taken from an article in Sole24Ore is a good reference tool to see which expenses can be deducted, at what % of the total cost and whether they can be paid in cash or not.

I hope you find it useful. If you are not claiming for any that you might be eligible for then I would advise you have a conversation with your commercialista about them.

Are You British, And Have You Recently Become An Official Resident Of Spain?

By Jeremy Ferguson
This article is published on: 9th April 2019

09.04.19

If The Answer is Yes,
What’s Going to Change For You?

Last night I attended a presentation hosted by the British Consulate covering the issues of living here post Brexit. Well, I am not sure how informative it was, as there seemed to be lots of ifs, buts and maybes. One thing I did conclude from it all however, and something I have always maintained, is if you live here, why not just get in to the system properly rather than constantly ‘wondering’ about it, or simply avoiding the issue.

Many people have been here in Spain for years without ever becoming officially resident. Differing circumstances cause this, varying between lots of time spent travelling, working away in another country or just being told not to worry. These tend to have all created a ‘meaning to get round to it tomorrow’ situation for many people.

This has quite often been the case when I have met with people during the 20 plus years I have been here, until along came this Brexit situation. It has resulted in more and more talk about what to do in the press, on the TV and radio, in bars, at family gatherings; basically everywhere.

EU membership has led to the feeling of it being very easy to live here in oblivion to all things official. But that looks like it is now changing. Or is it? One thing we do know is that the Spanish have seized the opportunity to entice people to become official residents of Spain, and if you want to avoid any doubt going forward, it is by far the most sensible option.

In the build up to the 29th of March deadline, the British Consulate and local Spanish town halls have actively encouraged people here to take up official residency in a series of talks like the one I attended last night. It’s amazing how quickly this has all become reality in what seems such a short time since the original referendum in June 2016. Now we are looking down the barrel of a possible no deal Brexit on the 12th of April.

Or are we? Who knows as I write this.

All of this aside, the sensible thing, without doubt, is for people to become officially resident here in Spain. For many, since the Brexit situation it has felt like a fait accompli and therefore something they simply have to do. Whatever the reason, if you have made the decision, then what does it actually mean for you going forward? Things seemed to be absolutely fine before, so surely not a lot will change?
Well, that is not exactly true.

The first thing to stress is how nice it is to know that now you won’t need to worry about ‘sort of knowing’ you probably should be resident and in the system. Things can certainly now be 100% clear. I call it ‘the sleep easy factor’, and it’s amazing the amount of people who say how good they feel when it’s all done.

There are a number of things that you should now consider, not necessarily in this order.

Do you have Spanish will?
You should already have a Spanish will if you own a property here, so that’s not changed. If you haven’t done that, you must, and it is very easy to do. It can be in both English and Spanish so you will understand everything.

And it’s not expensive. A lot of lawyers I know will do it for a couple of hundred euros if things are all quite straightforward. That will be another box ticked!

Once resident, currently some say you have up to two years to change your driving license to a Spanish license. There are others who say you have three months, others who say 9 months. The UK Government advice site says two years.

Regardless of who says what, and to avoid any embarrassing confusion, once you have residency why not just get on with changing your license? Again, there are many people around who will help you do this. You will get a temporary license while it is being dealt with and then a nice new Spanish license. A medical test will be needed, but again these aren’t that difficult to arrange. As long as you are in reasonably good health this shouldn’t be an issue.

On a positive note I have certainly found Trafico much easier to deal with showing a Spanish license when pulled over for a roadside check. The rules here are different to what you may be used to. You start with 13 points and they are deducted when you are caught being naughty. When you get to zero, then a suspension will occur!

Importantly, there will be taxes and tax returns to consider.

If this is your first time becoming a tax resident, then you will have to file a tax return for this year. The tax year here is the same as the calendar year (unlike the UK with their silly April date!). Your first return will therefore have to to be filed no later than the 30th June 2020.

Income tax will be due on income received during the year at varying rates depending on the amounts involved. This is similar to the UK with the rate increasing the greater your income level.
If you were previously a non resident, then you would pay capital gains tax when you sold your house (assuming there was a profit!). Now, as a resident, this will not apply on your main residence when it is sold, subject to certain criteria being met.
Wealth tax is due every year on your assets. This, as the words say, is effectively for people considered wealthy, and increases the wealthier you are. For most people this is not too much of an issue, but can be painful for people with a lot of assets.
Inheritance tax can be a complex area, and tax is paid by the person who receives the inheritance. The rules here in Andalucia have changed recently, meaning this should really not be so much of an issue anymore as there are now large exemptions granted which almost eradicate any amounts due, depending on the size of the estate.
At the end of each year, you will now also have to file a separate tax return from the one mentioned above, on a form known as Modelo 720. This is simply a declaration of everything you own in excess of 50k € outside of Spain (bank accounts, property, investment policies, share portfolios etc), and needs to be filed by the 31st March 2020.

Investments & Pensions
Regarding your investments and pensions, take a good look at where your income is coming from and what type of investments you hold. A simple example of the different treatment after taking residency would be holding UK ISAs. Although these are tax exempt in the UK, as a tax resident here these will now be taxable.

Also, how will your pension be taxed now? Previously, you were entitled to a Pension Commencement Lump Sum (PCLS, previously referred to a tax free lump sum). This will now be taxable here in Spain. The rate applicable will vary depending on how old the scheme is, and any benefits you are receiving will be taxed differently depending on the amount. If you haven’t started drawing from your pension yet, it may be worth looking at moving the scheme away from the UK, for a multitude of reasons. On the other hand it may not, so if you do look into this, make sure you are furnished with all of the information you need to make a well informed decision.

Having taken residency will mean you have adequate medical insurance in place, and although this can be seen as expensive, the treatment you will receive will be second to none.
Of course, as with all of these things there are the exceptions and everyone’s circumstances differ slightly. But the overriding message is that things should be fine here, even after Brexit, and as we know, the Spanish are very keen to keep us all here for many years to come.

I have covered many different aspects in this article, but please make sure you take good advice from people in the know. There are many legal, tax and financial advisers here who will be able to help you with most of the subjects covered; but as always, make sure you shop around, as prices and service levels do vary greatly, and always see if you can get a recommendation from someone who has firsthand experience of using that person before.

So, with all things considered, maybe Brexit pushing you to become a fully fledged Resident of Spain wasn’t such a bad thing after all.

French Tax Changes 2019

By Sue Regan
This article is published on: 31st January 2019

31.01.19

2019 has brought a number of changes to the French tax system. Below is a summary of the principal changes affecting personal taxation.

INCOME TAX (Impôt sur le Revenu)
There has been no change to the rates of income tax of the barème scale, but the tax bands have been increased as follows:

Income	Tax Rate
Up to €9,964	0%
€9,965 to €27,519	14%
€27,520 to €73,779	30%
€73,780 to €156,244	41%
€156,245 and over	45%

PAYE (Prélèvement à la Source)
PAYE has been introduced in France with effect from 1st January 2019.
The types of income subject to PAYE include:

Income from employment
Retirement income, including UK private and State pensions, but excluding certain pensions where tax is already deducted at source, such as UK Civil Service pensions
Rental income, including that from French properties owned by people who are not resident in France.

For French source income, the employer or pension provider will deduct the tax at source.

Clearly, where income is generated from outside of France there can be no deduction at source by the French authorities. This means that many expatriates living in France will be subject to a monthly withholding tax on their income. Therefore, starting in January 2019, the tax authorities will collect a sum equal to 1/12th of the tax paid in 2018 (based on income declared for 2017).

Excluded from PAYE is investment income, such as bank interest, dividends, capital gains and gains from life assurance policies.

New residents of France who have not yet submitted a French tax return, will have the option of paying a sum ‘on account’, or be taxed in May 2020, following submission of their first tax return.

Everyone will still be required to submit a French tax return in the May of the following year. Thereafter, the final assessment of tax liability will be carried out, and you will either receive a tax refund or be required to pay any additional tax due, over a four-month period.

If you do not currently pay any income tax, you will not be required to pay provisional monthly payments. Similarly, if you anticipate a significant change to your income during the course of the year you can request that the tax authority alter your tax code. However, if you do so, and your income is 10% greater than advised, you could face a tax penalty of at least 10%.

REFORM OF SOCIAL CHARGES (Prélèvements Sociaux)
Some changes have been introduced to certain social charges, which is good news for some taxpayers.

The main rates for social charges remain the same as for 2018, i.e.:

Source of income	Rate
Pension	9.1%
Investment and property rental	17.2%
Employment	9.7%

Social Charges on Pension Income
The exemption from social charges on pension income still applies if you hold the EU S1 Certificate or if France is not responsible for the cost of your healthcare.

However, those pensioners who do not satisfy the exemption conditions above, but whose pension income is less than €2,000 per month (or €3,000 for a couple), will now pay a lower rate of 7.4% on pension income.

Social Charges on Investment Income and Capital Gains
From 1st January 2019, individuals covered under the health care system of another EU or EEA country are no longer subject to the existing rate of 17.2% on investment income or capital gains. Instead they will now pay a new flat rate of 7.5%. This new flat rate is known as the ‘Prélèvement de Solidarité’ and represents a saving of 9.7%. It applies to investment income, such as property rentals, bank interest, dividends and withdrawals from ‘assurance vie’ policies, and capital gains realised by both residents and non-residents of France.

In summary, taxpayers can benefit from the new 7.5% rate on investment income if:

They hold the EU S1 Certificate
They are a non-resident of France earning French source income (i.e. rental income, capital gains on the sale of a French property, etc) and are covered by the health system of another EU or EEA country

ASSURANCE VIE
There are no changes to ‘assurance vie’ apart from the social charges reform detailed above which will benefit some policyholders.
For policies held for more than eight years, the annual allowance remains at €4,600 for individuals and €9,200 for married/PACS couples.

This outline is provided for information purposes only based on our understanding of current French tax law. It does not constitute advice or a recommendation from The Spectrum IFA Group to take any particular action to mitigate the effects of any potential changes in French tax legislation.

If you would like to discuss how these changes may affect you, please do not hesitate to contact your local Spectrum IFA Group adviser.

France’s new PAYE system

By Katriona Murray-Platon
This article is published on: 12th October 2018

12.10.18

As of 1st January 2019, taxes in France will be paid at source for certain types of income. Although PAYE systems exist in many countries, including the UK, this will be a first for France. Whilst the French authorities are doing everything they can to ensure this reform goes smoothly, it is still a huge change for French tax payers.

Social charges on salaries, pensions and unemployment benefits are already paid at source. Income tax, however, has always been declared on the tax form by the end of May of each year and paid either monthly or quarterly the following year. The problem with this situation is that where there is a significant change in the taxpayer’s life, for example a wedding, divorce/separation, loss of a partner or birth of a child, which would affect the tax payable, these changes were not taken into account until much later.

Those who do not pay tax because their income is too low or, for example, those with UK source income that is not taxed in France (Civil Service pensions, UK rental income, UK salaries) will not be affected and will continue not to pay tax.
From 1st January 2019, the income that will be subject to the pay at source system includes, French salaries, French pensions, French job seekers allowance, benefits, and sickness/maternity pay. The employer or authority responsible for the payments will also deduct the income tax and pay it directly to the tax authorities. Auto-entrepreneurs, micro-entrepreneurs, business owners and the self-employed will pay a monthly amount to the tax authorities. Income tax and social charges on French rental income will be paid monthly or quarterly, directly from the taxpayer’s bank account.

The rate of tax which will be applied was calculated by the tax authorities based on the income declared in 2017. This rate, which is either an individual rate, a joint rate or the neutral rate, appeared on tax statements in 2018. In homes where one partner’s salary is significantly more than the other, they have the option of having individual rates based on their own income. This rate will be communicated by the French tax authorities to employers, pension bodies and the French job centre.

The tax which would have been paid in September 2019 on the income received in 2018 will be cancelled out by a one-off tax credit. This however will not affect dividends, capital gains or withdrawals from assurance vies made in 2018 as they are considered “one-off” benefits.

The self-employed, whose income may change from one year to another, will be able to adjust their monthly amounts on the impots.gouv.fr website in a way which will be simpler than the current payment situation.
What will not change is the rates of tax, the tax credits and tax reductions, and the obligation to declare all worldwide income every year before the end of May. If your income has changed then a new rate will appear on the tax statement in September 2019 and it will apply to your monthly payments from that September.

The new system will not really affect those receiving income from capital. The flat tax introduced in January 2018 will continue to apply in 2019 to interest, dividends, assurance vie withdrawals and capital gains. The tax will be taken at source when the interest is paid into the bank account, or at the time of withdrawal on the gain element of an assurance vie investment. For withdrawals from assurance vie policies which were created or topped up before 27th September 2017, the policy holder may opt to be taxed at the old system (35% tax in the first 4 years, 15% tax after 4 years and 7.5% after 8 years with the abatements of €4,600 per person or €9,200 per couple) or their marginal rate. Withdrawals from assurance vie policies created or topped up after 27th September 2017 (if the amount exceeds €150,000 of capital) will be taxed automatically with the flat tax unless and until the tax payer opts for their marginal rate. However, unless you don’t normally pay tax, in most cases the flat tax is more tax efficient as it essentially reduces the income tax to 12.8%. Social charges at the new rate of 17.2% will continue to apply to all capital income.

For any questions on the above or how you may be affected please do not hesitate to contact your local Spectrum adviser.

All this talk of a flat tax

By Gareth Horsfall
This article is published on: 8th June 2018

The current political environment in Italy is one which I find very interesting, notably in how it is perceived in foreign media and presented to us through the usual media outlets. In particular, I reference the constant use of the word ‘Populism’ and ‘Populist Government’. I confess that I had to have a quick look at the definition of populism before writing this Ezine and was interested in finding out that the exact defintion, according to Wikipedia, is:

‘Populism is a political philosophy supporting the rights and power of the people in their struggle against a privileged elite’

I have a confession to make that if I can pick and choose only this broad defintion of Populism then I think I can fit myself into a part of the populist ideal. (Clearly it is more complicated than this but I am merely trying to make my point, and as a regular reader of my E-zine’s you will understand my usual approach!)

However, I think it is worth exploring the idea that the Lega and M5S coalition have put together of a flat tax. Although a flat tax for eveyone, no matter how rich or poor is completely obscene in my opinion the ‘flat tax’, proposals, which will launch at 20% for businesses as of July 1st 2018 and 15% – 20% on 1st Jan 2019 for individuals, assuming the Government holds together, actually make a lot of sense to me.

A radical reform of the Italian income tax system is about to take place, and one which is long overdue in my opinion. Not for any populist reasons, but for more practical reasons which I will expand on below.

The proposed flat tax regime
If you want to have a look at the Contratto per il Governo di Cambiamento, then you can do so HERE. It makes interesting reading, if not full of more blurb than actual facts at this stage. However, its a start.

So, going back to the issue of the flat tax. The proposal, soon to be put into force, is to reform the tax regime into 2 flat tax rates, namely 15% and 20%. This sounds very new and certainly will win a lot of those populist votes. But first let’s take a look at how income is currently spread in Italy and the following chart shows just who it would affect:

It’s quite interesting to note from this chart that 80% of the tax paying population of Italy earn up to €29000. The median declared income is €19000pa. Those may sound strange numbers but when you consider the current Italian tax rates (see chart below), you can start to form an idea that there is probably a little bit of fiddling of the figures. After €28000pa in reddito complessivo the tax rate jumps from 27% to 38%. With this in mind, the proposal of a flat tax could potentially bring in alot of, currently, undisclosed (let’s call it what it really is: ‘in nero’) money to the Government coffers.

A QUICK REMINDER OF ITALIAN INCOME TAX RATES
(IRPEF – Imposte sul reddito delle persona)

€0 – €15000 = 23%
€15000- €28000 = 27% (€3450 + 27% on the part over €15000)
€28000 – €55000 = 38% (€6960 + 38% on the part over €28000)
€55000 – €75000 = 41% (€17220 + 41% on the part over €55000)
over €75000 = 43% (€25420 + 43% on the over €75000)

How might it work in practice?
The new proposal is to have a flat tax of 15% on a combined ‘reddito famigliare’ of upto €80,000pa. If your ‘reddito famigliare’ is above €80,000pa then the flat tax rises to 20%.
A proposed maximum tax of €3000 would apply for every member of the family where they have a individual ‘redditto complessivo’ of no more than €35000pa. This would be limited to families where the ‘redditto famigliare’ is between €35,000- €50,000 pa.

In short, the most generous tax deductions are for those who have a ‘redditto famigliare’ between €40000 and €60000pa.

A straniero example……
This all sounds very exciting and some what overly generous for a country which has historically taxed its citizens up to the eyeballs. However, let’s use an average straniero example to see what difference it would make.

Let’s assume that we have a retired couple, with state pensions (€8000pa each) and private pensions of €18000 and €3000 respectively. They also own a property in their home country which generates a UK income of €8000pa (jointly owned). They have investments and savings, but for the purposes of this example they are not relevant as the proposed measures are for income tax only.

Under the current regime the income of each individual would be subject to taxation.

Spouse 1: €8000 + €3000 + €4000= Total €15000pa The tax rate applicable would be 23% therefore the tax would be €3450

For the purposes of this example I am not including any benefits, or credits that might be avaiable to any one individual or another

Spouse 2: €8000 + €18000 + €4000 = €30000pa Spouse 2 exceeds both band 1 and 2 and will enter the higher rate tax bracket creating a taxable liability of €7720

THE TOTAL INCOME TAX BILL WOULD BE: € 11170 per annum

Under the new proposals both spouse 1 and spouse 2 would pay a flat tax of 15% on their combined income , meaning a total tax bill of €6750

A SAVING OF €4420pa

Let’s take a breath and calm down for a moment
So, before we all start getting very excited we all know the Italian Government is not the most coherent at the best of times and we are in an unprecedented era. It may be that this proposal is watered down yet and we get a half way house offer, but I expect that simplification and lower tax rates are on the cards. In the end the country still has to balance the books and attract foreign investment. If they don’t have enough money coming into the Government coffers to keep the system running smoothly (for lack of a better word :0)) then the money will soon dry up and punitive tax rates will have to be imposed to reap that which has been lost.

My soap box moment
And so I move onto my favouritie part of this E-zine. My soap box moment. You see, I have been wanting to write this formally for a long time but never really had the opportunity to do so. I would go on record as saying that I am actually in favour of this radical overhaul of the Italian tax system and whilst I see this proposed flat tax regime as being a little unequally distributed, I do think its necessary and despite what the bankers, economists and bureaucrats tell us, I actually think it would be a good thing for Italy.

The entrepreneurial zone
I have always waxed lyrical that, what I like to call the entrepreneurial zone, in Italy, is completely dead. Any good economics book will tell you that 80% of employment and growth in a society comes from small to medium sized businesses. That is the shop that opens and gets so many customers that they need to employ a young person to manage the business in the mornings, or a new online business which grows rapidly and needs to employ 5 new people to manage operations. It’s worth repeating that 80% of growth in an economy and job growth comes from this area. Not the Vodafone’s of this world or the multitude of other multinational businesses that pop up on the high street. It’s the small businesses and one man bands that grow into medium sized firms that cumulatively turn over billions in revenue each year. This is real growth. And this is what Conte ( the new Prime Minister) talked about in his first address to Parliament when he said that he wanted Italy to grow its way out of debt and not have to impose more austerity. He is absolutely right. The economics speak for themselves.

Which brings me back to the entrepreneurial zone. This is the area which I think is the most important. To take a business from nothing: an idea, a start up, to revenue of €50,000 each year and onto €250,000 each year you need incentive. It is in the Governments’ interest to incentivize you because you are going to employ the people and pay the taxes that will contribute towards 80% of the running of that country. And from there you may have the skills to turn that business in a multi million euro revenue business employing hundreds of people and contributing back even more into the running of the society. The problem with Italy is that after €28000pa in revenue they effectively chop you off at the knees (the tax rates rise astronomically + there is the dreaded social security contributions to pay. INPS) and let you see if you can hobble along and survive whilst they come running after you to chop off your arms, and then take the rest. It’s like being chased by a mad axe man without your legs and seeing if you can hobble faster than he can catch up with you before he hacks the rest off. It just doesn’t work. In my opinion, this is one of the main problems in Italy and why I think both Di Maio and Salvini have got the right idea when it comes to taxation. (The rest of their policies are open to debate, although some of those also have a lot of merit!)).

I am reminded of the conversations I regularly have with clients who recount stories of their children who set up businesses in Italy and either struggle on barely being able to keep the businesses afloat and or eventually closing down. A young business needs all the revenue it can get in that ‘ entrepreneurial zone’, that area between €0 and €100,000 pa. If a business is going well most of that income is going to be re-invested anyway and used to employ people or purchase goods and services. Europe has to support Italy at this time and allow that zone to flourish and provide opportunities to young and old entrepreneurs alike.

So who is responsible for change
There is always a counter argument for every case and clearly in this case, given the cultural back drop to Italy’s tax collection issues there will be economists who will argue that if income tax revenue were to drop drastically by lowering rates so much then how will Italy, ‘The State’, balance its books, after all there is nothing to say that people will suddenly start declaring all their income because the tax rate is more favourable. That is why the proposed tax regime has to be followed by some hardline clampdowns on tax evasion. Otherwise, it just won’t work.

I am going to follow these proposals closely, and feed back to you, to keep you abreast of any legislation changes. (Watch out for the summer months as they like to slip new laws in whilst everyone is on holiday). I am completely in favour of a total overhaul of the Italian tax system and dispute what the media, economists, and supposed experts say (I sound like a Brexiteer). I think drastically cutting tax rates in Italy, whilst having a short term impact on Government revenue would attract foreign investment in droves ( I mean if you had the chance to set up a factory in Huddersfield or one in Umbria, which would you choose?), it could increase investment rapidly, create jobs, create subsidiary businesses servicing the bigger ones, incentivize larger business to relocate because of the tax rates and could create a new economic boom for Italy. That being said, if it isn’t put into place with some heavy Governmental supervision then it could all fall apart and Italy’s days in Europe would be numbered. And therein seems to be the folly of the whole idea. Europe, whilst I love the European project dearly, has not treated countries like Italy favourably and should it continue on its current path without allowing any kind of change and only implementing austerity, then the likelihood is that Italy would eventually decide to Italexit.

Government has to lead
Italy, like any government around the world has to take the lead in forcing through sensible change. The young business people I know who are barely making ends meet are never going to fully declare every euro they earn when they have families to feed, medical treatments to take care of and childrens schooling costs to pay. And given the choice of making a ‘few’ euros ‘in nero’ and being able to look after the family versus paying into a corrupt state which merely extracts the money from you by osmosis for its own nefarious means, the choice is simple. Most families, if not all, will take that risk. They just have to. Or they move abroad!

So I am in favour of Di Maio and Salvini’s tax plans. I hope they manage to find a solution that will help everyone, mainly the poor and the entrepreneurs who want to prosper but don’t have the ability to do so because of draconian tax measures which should have been ditched long ago. It won’t be an easy ride, but I hope it’s a success. And in the end, should it pay off it may just keep Europe together. Can you imagine Di Maio and Salvini going down in the history books as the saviours of Europe!

(You don’t need to write to tell me that my artistic licence has been abused in this article, just enjoy and let’s see what happens. I, for one, am moderately positive about the future if they can bring about positive change in the tax system in the way in which they are proposing to do).

Given the proposed changes in taxes in Italy, it will be an important time to take a look at your own tax and financial planning arrangements and make sure that they are as tax efficient as possible.

Are taxes in Italy really ‘that’ complicated?

By Gareth Horsfall
This article is published on: 30th April 2018

As I walk my son to school in the morning we have the opportunity to walk through the palazzo of an ‘Archivio di Stato’ in the centre of Rome. It is a real piece of classical architecture with cloister like columned walkways surrounding a central open space with a tower adorned with various statues at one end. However, it is not this amazing building which captures my attention each morning, but a plaque on the wall as we walk through the columned part. The plaque reads: Alluvione di 1870. The marker on the wall must be approximately 1 metre 50cm high. To think that the water reached that level is quite unimaginable. And thinking about this each day naturally leads me to the subject of floods. My personal flood is the annual flood of emails into my inbox, at this time of year, asking for clarification on taxes in Italy.

So this article is also about laying down some of the details of those pesky taxes that we all have to pay in Italy. Remember that the submission of your tax information should be formalised by the end of May. If you use a commercialista, even earlier, to allow them time to go through your information, ask questions and report it correctly. The first payment for the year is due on June 16th.

So, where do we start?
As a fiscally resident individual in Italy you are subject to taxation on your worldwide assets and income (with some exceptions), and realised capital gains. This means you are required to declare your assets and income and realised capital gains, wherever they might be located, or generated in the world.

Fiscal residency is going to become very important post BREXIT for Britons who reside in Italy. Questions have arisen as to what fiscal residency means. For a defintion you can read my post HERE

Tax on income
If you are in receipt of a pension income and it is being paid from a ‘private’ pension or occupational pension provider overseas or you are in receipt of an overseas state pension then that income has to be declared on your Italian tax return. If you have paid tax already on that income then a tax credit will be given for the tax paid in the country of origin (assuming that country has a double taxation agreement with Italy), but any difference between the tax rates in the country of origin and Italy will have to be paid.

** Government service, civil service and local government pensions of any kind (eg. Teachers, Nurses etc.) are only taxed in the state in which they originate, and tax is deducted at source in the country of origin. They are not taxed in Italy unless you become an Italian citizen **

It is a similar picture for income generated from employment. This is a slightly more complicated issue that depends on multiple factors. If you have any questions in this area you can contact me on gareth.horsfall@spectrum-ifa.com

Investment income and capital gains
As of 1st January 2018, interest from savings, income from investments in the form of dividends and other non-earned income payments stands unchanged and are taxed at a flat 26%. Realised capital gains are also taxed at the same rate of 26%.

(Interest from Italian Government Bonds and Government Bonds from ‘white list’ countries are still taxed at 12.5% rather than 26%, as detailed above. This is another quirk of Italian tax law as this means that you pay less tax as a holder of Government Bonds in Pakistan or Kazakhstan, than a holder of Corporate Bonds from Italian giants ENI or FIAT).

Property Overseas
Property which is located overseas is taxed in 2 ways. Firstly, there is the tax on the income and, secondly, a tax on the value of the property itself.

The income from property overseas.
Overseas NET property income (after allowable expenses in the country in which the property is located and taxed) is added to your other income for the year and taxed at your highest rate of income tax.

I would like to clarify what I mean by ‘net property income’. If we take the UK as an example, this means that you MUST make a tax declaration in the UK first. The UK property is a fixed asset in the UK and therefore must be treated to UK tax law before any declaration in Italy. After you have deducted allowable expenses in the UK and paid any tax liable in the UK, the NET property income figure must be submitted in your UK tax return.

Where many properties are generating all of your income this can prove to be a tax INEFFICIENT income-stream for residents in Italy. It is better to have a diversified income stream to maximise tax planning opportunities.

I will also add some comments here in that I often hear from people who are told by their commercialista that no expenses can be deducted in Italy. This is correct. What they mean (or what I am interpreting that they mean) is that you cannot deduct the UK allowable expenses directly through the Italian tax return. This has to be done first in the UK tax return, in this example. This is correct process. However, it does not mean that the expenses cannot be deducted per se. It just means they have to deducted in the revelant tax return first before reporting the NET result in Italy.

** Tax credits will be given for any tax paid in another country in order to avoid double taxation, where a double taxation treaty exists with Italy.

2. The other tax is on the value of the property itself, which is 0.76% of the value. (IVIE)
Value must be defined in this instance. For EU based properties, the value is the Italian cadastral equivalent. In the UK that would be the council tax value NOT the market value. This value is always expressed asa range of values rather than a specific one. You will find that the market value will, in most cases, be more than the cadastral equivalent value.

For properties located in other European countries, for example France, you will find that they may have a similar ‘cadastral’ value. Where this value is calculated in the same way as Italy, a tax credit is offered against any IVIE tax payable in Italy. The tax credit is not applicable to UK properties as the tax is due on the occupant of the property and not the owner.

In properties located outside the EU, the value for tax purposes is defined as the market value of the property ONLY where evidence cannot be provided of the purchase value of the property, in which case this would be used instead.

** BREXIT FINANCIAL PLANNING OPPORTUNITY**
After the UK exit from the EU, the cadastral equivalent value of a property in the UK will revert to the original purchase price, where evidence can be provided. Given that UK councils are likely to review their council tax bands in the comings years to fund shortfalls in their accounts, this could mean less tax to pay in Italy.

Taxes on Assets

1. Banks accounts and deposits
A very simple to understand and acceptable €34.20 per annum is applied to each current account you own. This includes fixed deposits, short term cash deposits, CD’s etc. The charge is the equivalent of the ‘imposta da bollo’ which is applied to all Italian deposit accounts each year.

The rules regarding whether you need to declare the account can be found on my blog post ‘IF IN DOUBT, DECLARE THE ACCOUNT‘

I am of the view that if you have a bank account in the UK with more than €5000 in it and/or a regular income being credited to it, then you should declare the bank account in Italy regardless of the tax reporting requirements. For the sake of the tax of €34.20, it is not worth taking the risk.

2. Other financial assets
The charge, IVAFE, is levied on other foreign-owned assets which covers shares, bonds, funds, portfolio assets, cryptocurrency, gold deposits, art work or most other types of assets that you may hold. The tax on these is 0.2% per annum based on the valuation as of 31st December each year.

Also remember that if you have a portfolio of managed assets that are NOT held in an a suitably compliant Italian Investment bond, then all the separate funds/shares/assets are considered “individual” and MUST be reported individually on your tax return each year. That also includes reconciling any income/dividend/distribution payments that have been made and also any capital gains that have been realised. A reference to the Banca D’Italia exchange must be made for each transaction on the correct date.

3. Pensions
It is worth noting here that for any UK style private pension or occupational pension arrangements, where the pension structure is an irrevocable trust, then the tax treatment is 2 fold.

a) any income that you draw from the pension each year is taxable at your highest rate of income tax in Italy.

b) the fund itself needs to be reported under ‘monitoraggio’ of trusts section of the Quadro RW. Failure to do so could result in fines. Although highly unlikely, you never can be sure.

This is a concise list of the taxes that affect most of you.

French Tax Changes 2018

By Spectrum IFA
This article is published on: 23rd January 2018

During December, the French budget completed its Parliamentary process, with little change to the initial proposals. Shown below is a summary of our understanding of the principle changes.

INCOME TAX (Impôt sur le Revenu)
Income tax bands of the barème scale have been increased as follows:

Income	Tax Rate
Up to €9,807	0%
€9,808 to €27,086	14%
€27,087 to €72,617	30%
€72,618 to €153,753	41%
€153,784 and over	45%

The above apply in 2018 in respect of the taxation of 2017 income, for example, pensions and earnings.

SOCIAL CHARGES (Prélèvements Sociaux)
The Contribution Sociale Généralisée (CSG) has been increased by 1.7%. This results in investment income and property rental income (unless exempted by a Double Taxation Treaty), being liable to total social charges of 17.2%. In addition, where France is responsible for the cost of the taxpayer’s healthcare in France, social charges at a rate of 9.1% will be applied on pension income.

FLAT TAX on revenue from capital
The Prélèvement Forfaitaire Unique (PFU) – also known as the Flat Tax – has been introduced. This will be charged on the total amount of interest, dividends and capital gains from the sales of shares, received by the taxpayer. It also applies to certain gains in withdrawals from assurance vie contracts and this is covered in more detail in the following section.

The Flat Tax rate is 30%, made up as follows:
➢ a fixed rate of income tax of 12.8%; plus
➢ social charges at the rate of 17.2%.

However, the option to pay income tax at the progressive barème scale tax rates above (in lieu of the Flat Tax rate of 12.8%), plus social charges of 17.2%, is still possible, but only at the taxpayer’s specific request. In this case, the taxpayer will also benefit from the existing 40% abatement on dividends (but not for social charges).

Capital gains from the sale of shares, no longer benefit from taper relief, where the gain is taxed at the Flat Tax rate.

However, for shares purchased before 2018, where the taxpayer elects for realised gains to be taxed at the progressive barème rates, taper relief will continue to apply, as follows:
➢ 50% for a holding period from two years to less than eight years; and
➢ 65% for a holding period of at least eight years.

This relief also applies to gains arising from the sale of shares in ‘collective investments’, for example, investment funds and unit trusts, providing that at least 75% of the fund is invested in shares of companies.

Likewise, for investments made prior to 2018 in new small and medium enterprises, the higher allowances against capital gains for investments in such companies are also still provided, as follows:
➢ 50% for a holding period from one year to less than four years;
➢ 65% for a holding period from four years to less than eight years; and
➢ 85% for a holding period of at least eight years.

Similarly, the Contribution Sociale Généralisée (CSG) deductible portion (6.8% out of the total social charges of 17.2%) will only be permitted in the case of taxation at the progressive barème scale rates.

Taxpayers will not be able to selectively chose the income that is subject to the Flat Tax and that which is subject to the progressive rates of the barème scale. The default is the Flat Tax and where the taxpayer makes an election for any income from capital to be taxed at progressive rates, this will apply globally. Therefore, careful planning will be needed by some taxpayers, particularly if they intend to make a disposal of a large holding of shares and/or receive a large payment of dividends.
The Livret A, Livret Développement Durable and Livret Épargne Populaire accounts remain exempt from income tax and social charges.

ASSURANCE VIE & CAPITALISATION CONTRACTS
Premiums paid before 27th September 2017
For premiums paid before 27th September 2017, there is no change. Therefore, the taxpayer has the option to be taxed at the progressive rates of the barème scale or the Prélèvement Forfaitaire Libératoire (PFL) rates, as follows:
➢ during the first 4 years at 35%
➢ between 4 years and 8 years at 15%
➢ post 8 years at 7.5%

Social charges at the rate of 17.2% are payable in addition.

For contracts with a duration of at least 8 years, the abatement of €4,600 for a single person, or €9,200 for a couple, continues to apply.

Premiums paid from 27th September 2017
For premiums paid from 27th September 2017, the taxation rate will vary according to the age of the contract, plus for contracts older than 8 years, according to the ‘threshold’ amount of capital remaining in the contract as at 31st December of the year prior to the withdrawal being taken.

The threshold amount is €150,000 per individual person (across all assurance vie policies), which is determined by reference to the amount of the premiums invested, reduced by any capital already withdrawn, and not the value of the contract.

The threshold is not cumulative between persons and therefore, couples who are taxed as a household cannot share in each other’s threshold. Thus, one spouse may reach the threshold level, whilst the other does not, for example, where one has say €200,000 capital invested and the other only has €80,000 invested.

The reform provides for the PFU to apply for assurance vie contracts of less than 8 years, regardless of the amount of the outstanding capital. Thus, the PFU rate of 30% will be globally substituted for the pre-27th September 2017 rates of 52.2% (up to 4 years contract duration) and 32.2% (4 – 8 years contract duration)

Therefore, according to the age of the contract, the following tax rates will apply:
➢ during the first 8 years, the Flat Tax rate of 12.8%
➢ over 8 years, 7.5% up to the threshold, plus 12.8% above the threshold.

Social charges of 17.2% are payable in addition.
Insurers will be obliged to deduct the tax of 12.8%/7.5%, i.e. depending on the duration of the contract, plus the social charges. Subsequently, for contracts older than 8 years and where the taxpayer has exceeded the threshold, any additional tax due will be charged through the taxpayer’s annual declaration.

The following table summarises the situation:

	Fixed tax rate applied
Gaines from premiums paid from 27/09/2017	Deducted by the insurance company plus social charges of 17.2%	Additional tax payable if threshold exceeded	Additional tax payable if threshold not exceeded
Contracts < 8 years	12.8%	No	No
Contracts > 8 years	7.5%	Yes, to reach 12.8%	No

The post 8-year abatement of €4,600 for a single taxpayer, or €9,200 for a couple, continues to apply.

All taxpayers will have the possibility to opt for taxation at the progressive income tax rates of the barème scale, plus social charges, at the time of making their tax declaration. As the insurance company would have already deducted the PFU tax, any excess tax already paid will be refunded following the processing of the tax declaration made in the year following the payment of the withdrawal. However, taxpayers should be aware that if taxation at the progressive rates of the barème scale is chosen for assurance vie gains in amount withdrawn, then this will apply globally to all income from financial capital.

There is no change to the inheritance tax treatment of assurance vie contracts.

Examples of how the taxation will work:

Example 1
Mr X invested €200,000 in his policy in January 2017. In case of redemption after 8 years, as the premium was invested before 27th September 2017, the gain will be taxed at 7.5%, after application of the abatement of €4,600. Social charges of 17.2% on the total gain are also payable.

Example 2
Mr Y invests €200,000 in his policy in October 2017. In case of redemption after 8 years, as the premium was invested after 27th September 2017 and exceeds the threshold of €150,000, 75% of the gain will be taxed at 7.5% and 25% at 12.8%. The abatement of €4,600 will be first applied to the gain taxed at 7.5% and any balance applied to the gain taxed at 12.8%. Social charges of 17.2% on the total gain are also payable.

Example 3
Mr Z invests €100,000 in an assurance vie contract in 2007 and makes an additional investment of €200,000 in 2018. He decides to fully surrender the assurance vie in 2019, when the value of the policy is €360,000. €50,000 of the gain is attributed to the 2007 premium and €10,000 to the premium invested in 2018. Our understanding is that the tax on the total gain of €60,000 would be calculated as follows:

– 2007 premium: (€50,000 – €4,600) x 7.5% = €3,405.00
– 2018 premium: as he has only ‘used’ €100,000 of the €150,000 threshold against the 2007 premium, the balance of €50,000 can be applied to the premium paid after 27th September 2017, which is 25% of the €200,000 invested. Therefore, 25% of the gain of €10,000 relating to the 2018 premium will be taxed at 7.5% and the balance at 12.8%, as follows:

o (€10,000 x 25%) x 7.5% = €187.50
o (€10,000 x 75%) x 12.8% = 960.00

– Total tax = €3,405.00 + €187.50 + €960.00 = €4,552.50

Social charges of 17.2% on the total gain are also payable.

PROPERTY WEALTH TAX (Impôt sur la Fortune Immobilier)
Wealth tax on total assets (Impôt de Solidarité sur la Fortune – ISF) has been abolished and replaced with Impôt sur la Fortune Immobilier (IFI).

IFI will apply only to real estate assets and the principal residence is still eligible for the 30% abatement against its value. Therefore, taxpayers with net property assets of at least €1.3 million would be subject to IFI on taxable assets exceeding €800,000, as follows:

Fraction of Taxable Assets	Tax Rate
Up to €800,000	0%
€800,001 to €1,300,000	0.50%
€1,300,001 to €2,570,000	0.70%
€2,570,001 to €5,000,000	1%
€5,000,001 to €10,000,000	1.25%
Greater than €10,000,000	1.50%

However, at the outset of the debates on the proposed tax changes, it quickly became clear that MPs were not entirely happy about the idea of replacing ISF with IFI. In particular, for people with substantial wealth, who would also benefit from the Flat Tax, this was considered to be a step too far! Therefore, additional taxes have been introduced on certain luxury goods, for example, yachts and sports cars.

TAXE d’HABITATION
Taxpayers who are not liable to IFI will benefit from reductions in taxe d’habitation, in respect of their principal residence, subject to certain taxable income (Revenue Fiscal de Référence) ceilings not being exceeded. For a single taxpayer, the taxable income limit is €27,000 and for a couple, €43,000.

For those who meet the requirements, their taxe d’habitation will be reduced by 30% in 2018, 65% in 2019 and total exoneration in 2020. Where taxable income is just above the income threshold (up to €28,000 for a single person and €45,000 for a couple), the reduction in the taxe d’habitation will be proportionally reduced.

ENTRY INTO LAW
The changes have entered into law following publication in the Official Journal of France.
22nd January 2018

This outline is provided for information purposes only. It does not constitute advice or a recommendation from The Spectrum IFA Group to take any particular action to mitigate the effects of any potential changes in French tax legislation.

Proposed French Tax Changes 2018

By Sue Regan
This article is published on: 25th October 2017

25.10.17

Since my last article the October Tour de Finance event has taken place at the Domaine Gayda in Brugairolles, near Limoux. As always, it was a huge success and very well attended. It was great to see some familiar faces as well as make some new contacts. Over 70 guests in all came along to listen to a number of industry experts speak about highly topical issues such as the proposed changes to the French tax system, pensions, assurance vie, discretionary fund management and, of course, the “B” word!

In this article I will concentrate on our understanding of some of the proposed changes to the French taxation regime, as published in the Projet de Loi de Finances 2018. Of particular interest to many of our clients are the proposed changes to Wealth Tax, the increase in Social Charges and the new 30% Flat Tax on revenue from capital. At the time of writing, these, and other proposed changes have still to be agreed in Parliament and then referred to the Constitutional Council for review before entering into French law. So we won’t know for sure the exact changes that will take place until the end of the year. However, below is a brief summary of the main proposals as we understand it.

WEALTH TAX (Impôt de Solidarité sur la Fortune)
The government proposes to abolish the current wealth tax system and replace this with Impôt sur la Fortune Immobilier (IFI).

IFI would apply only to real estate assets and the principal residence would still be eligible for the 30% abatement against its value. Therefore, taxpayers with net real estate assets of at least €1.3 million would be subject to IFI on taxable assets exceeding €800,000, as follows:

Fraction of Taxable Assets	Tax Rate
Up to €800,000	0%
€800,000 to €1,300,000	0.5%
€1,300,001 to €2,570,000	0.7%
€2,570,001 to €5,000,000	1%
€5,000,001 to €10,000,000	1.25%
Greater than €10,000,000	1.5%

This is good news for French residents with substantial financial assets, including those held within assurance vie. However, there have already been some protests to the scope of the new form of ‘Wealth Tax’ being levied only on real estate, with luxury items such as yachts and gold bullion being exempt. Thus, I don’t think we have heard the last of this!

SOCIAL CHARGES (Prélèvements Sociaux)
It is proposed to increase the Contribution Sociale Généralisée (CSG) by 1.7%. This will result in investment income and property rental income being liable to total social charges of 17.2% and, where France is responsible for the cost of the taxpayer’s healthcare in France, at a rate of 9.1% on pension income.

FLAT TAX on revenue from capital
It is planned to introduce a Prélèvement Forfaitaire Unique (PFU) at a single ‘flat tax’ rate of 30% on investment income, made up as follows:

➢ a fixed rate of income tax of 12.8%; plus

➢ social charges at the rate of 17.2% (taking into account the proposed increase).

The PFU will apply to interest, dividends and capital gains from the sale of shares.

How does this affect Assurance Vie contracts?
Based on information currently available and, of course, the finer details may change before being passed into law, it is our understanding that for premiums invested totalling €150,000 or less per person (so €300,000 for a joint life policy) the existing system of withholding tax (prélèvement forfaitaire libératoire PFL). Taking into account social charges at the increased rate of 17.2%, this results in gains on amounts withdrawn, continuing to be taxed, as follows:

➢ during the first 4 years at 52.2%

➢ between 4 years and 8 years at 32.2%

➢ post 8 years at 24.7%

The first draft of the bill proposed that the new ‘flat tax’ will replace the existing PFL system but will only apply to gains on premiums invested after 27 September 2017, that exceed the thresholds above. However, the National Assembly has already decided that it is illogical to have different tax rates, depending on how long the premium has been invested, for new investments made from 27 September 2017. Therefore, an amendment to the bill has already been proposed that all new investments made should be subject to the ‘flat tax’.

It is proposed that all taxpayers will have the possibility to opt for taxation at the progressive income tax rates of the barème scale, plus social charges. Therefore, any potential gains on capital, including withdrawals from assurance vie policies, should be assessed on an individual basis to determine in advance as to which method of taxation would be most appropriate.

There is no change to the inheritance tax treatment of assurance vie contracts and the post 8-year abatement of €4,600 for a single taxpayer, or €9,200 for a couple, will be maintained. Thus, despite the proposed tax changes, the assurance vie will continue to be a very useful vehicle for sheltering financial assets from unnecessary taxes. In addition, as assurance vie policies fall outside of your estate for inheritance tax purposes, you can leave your investments to your chosen beneficiaries without being subject to the French Succession Laws of “protected heirs”.

The abolition of taper relief
The reform also proposes the abolition of the taper relief on capital gains from the sale of shares, in respect of gains from disposals from 2018.

So, if you are sitting on a portfolio of shares which are not sheltered in a tax wrapper, then now is the time to have a look at any gains you may have and, possibly make use of the taper relief of up to 65% on the total gain, while it is still available. Don’t delay in speaking to your financial adviser who should be able to identify whether the restructuring of your investments is in your best interests.

A look at tax rates across Europe

By Chris Burke
This article is published on: 31st May 2017

In a recent article in the Guardian newspaper, Patrick Collinson examines how the average burden on British people earning £25,000, £40,000 and £100,000 compares with taxes paid by similar earners in Europe, Australia and the US.

Chris Burke from The SpectrumIFA Group in Barcelona calculated the figures for Spain and explains “homeowners also pay an annual tax on the value of their property, currently around €900 on a home valued at €300,000, so slightly less than typical council tax rates in the UK. However, he says that inheritance tax has shifted enormously in recent years, having been raised to 19% during the financial crisis but now starting at just 1%”.

Labour’s plan to tax incomes over £80,000 more heavily is a “massive tax hike for the middle classes” that will “take Britain back to the misery of the 1970s”, according to rightwing newspapers. But are British households that heavily taxed?

A comparison of personal tax rates across Europe, Australia and the US by Guardian Money reveals how average earners in Britain on salaries of £25,000, or “middle-class” individuals on £40,000, enjoy among the lowest personal tax rates of the advanced countries, while high earners on £100,000 see less of their income taken in tax than almost anywhere else in Europe.

The survey found that someone earning £100,000 in the UK in effect loses about 34.3% of their pay to HM Revenue & Customs once personal allowances, income tax and national insurance are taken into account. The one-third reduction is roughly the same as the US, Australia and Spain, but a long way behind the 38% in Germany, 41% in Ireland, 45% in Sweden and up to 59% in France (though the French figures include very large pension contributions).
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Note that these figures are a rough guide only. International tax comparisons are bedevilled by large numbers of factors. We compared rates for a single person with no children and with no special allowances. Most countries tax individuals rather than households, but France taxes couples, which has the impact of reducing the burden on a high earner with an at-home partner. Autonomous regions within countries impose their own varying taxes. We converted euros, dollars and krona into sterling at a time when the pound had fallen rapidly; some earnings might have translated into higher tax bands abroad before sterling plunged.

Some countries, such as the US, raise relatively large revenues from property taxes. Others squeeze revenue from sales taxes – 25% in Sweden, 19% in Germany. While there is some harmonisation of income tax rates, social security varies dramatically. Australia imposes a small medical levy of 2%. France’s charges can be as high as 30%.

One of the most striking facts to emerge is church taxes. In Germany, individuals are expected to give 8% of their income to the church.

EU officials may look forward to the day when the single currency is teamed up with a single tax policy. But what emerges from our survey is how elaborate each country’s tax and social security systems are. Britain’s actually looks relatively simple compared with France’s. The Brexit negotiations will be a walk in the park compared with any attempt to harmonise the EU’s 27 national tax and social security systems.

France

Gross salary £25,000
After tax £17,050
Tax rate 31.8%

Gross salary £40,000
After tax £23,520
Tax rate 41.2%

Gross salary £100,000
After tax £40,600
Tax rate 59.4%

Spain (Catalonia)

Gross salary £25,000
After tax £20,812
Tax rate 16.7%

Gross salary £40,000
After tax £31,000
Tax rate 22.1%

Gross salary £100,000
After tax £65,700
Tax rate 34.3%

Germany

Gross salary £25,000
After tax £18,923
Tax rate 24.3%

Gross salary £40,000
After tax £27,256
Tax rate 31.8%

Gross salary £100,000
After tax £61,740
Tax rate 38.3%

Sweden

Gross salary £25,000
After tax £19,500
Tax rate 22%

Gross salary £40,000
After tax £30,000
Tax rate 25%

Gross salary £100,000
After tax £55,000
Tax rate 45%

Ireland

Gross salary £25,000
After tax £21,183
Tax rate 15.3%

Gross salary £40,000
After tax £29,624
Tax rate 26%

Gross salary £100,000
After tax £59,000
Tax rate 41%

United Kingdom

Gross salary £25,000
After tax £20,279
Tax rate 18.9%

Gross salary £40,000
After tax £30,480
Tax rate 24.8%

Gross salary £100,000
After tax £65,780
Tax rate 34.3%

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First published Saturday 27 May 2017, author Patrick Collinson