Tax is a complex subject, especially for British expats trying to decide whether it’s better to be tax resident in France or in the UK. The opinion is that France is invariably a high-tax country while Britain is not, but is this really the case? Well, that depends entirely on personal circumstances, and also whether you consider social charges a tax or an insurance policy. For average earners in France, income tax is low but obligatory social insurance charges are high. In Britain, it’s the other way round.
PriceWaterhouseCoopers have tried to make some sense of all this in a recent study of 20 countries which looked at how much a high earner takes home once tax and social contributions are paid. PWC found that a married British resident with two children, earning the equivalent of 400,000USD a year has 57.28% of his salary left after taxes and National Insurance contributions. The average Frenchman has 58.10% but the lucky Saudis are left with 96.86%; New Yorkers take home 60.45%.
Tax bands vary from country to country so a very high earner might fall into President Hollande’s dreaded 75% category but wouldn’t pay nearly as much if he was tax domiciled in the UK where the top rate is 45%. Authorised deductions for children, mortgages, special allowances and accrued wealth also diverge but even Hollande has a way to go before reaching Harold Wilson’s 95% supertax that inspired the Beatles hit “Taxman” in 1966.
Not only do tax thresholds differ between countries, but rates also vary enormously. The top rate in Britain of 45% for earnings over £150,000 seems steep but only 1% of British taxpayers pay this. These high earners represent 29.7% of HMRCs income tax takings. Ed Balls says that this rate would be raised to 50% under a Labour government.
The top 16% of British earners pay 67% of all the income tax collected by HMRC.
France’s top rate of 75% affects fewer than 1000 people – those who earn more than €1 million annually. Some of those who did qualify have already followed actor Gérard Depardieu to friendlier tax climes, including Britain.
A much more relevant rate for British middle-income earners is 40% which applies to income over £41,450 a year. In 1988, only 1.35 million British taxpayers qualified but by 2010 the number more than doubled and now stands at 4.4 million. Unless the threshold is raised, the number of people paying 40% is expected to rise to 6 million in 2015 as salaries increase. Some teachers, nurses, police officers and even Tube drivers already find themselves in the 40% bracket.
Renewal campaign head Dave Skelton proposes scrapping the 40% tax as it now exists and instead applying 45% to income over £62,000 instead of the current £150,000. This would reduce the tax burden on those earning between £42,000 and £62,000 to 32% of their total income. Parties are divided on whether the threshold should change.
In the meantime, 2.7 million more Britons are paying no income tax at all since the non-taxable threshold was raised by Cameron from £6475 to the current £10,000.
So would you be better off in the UK or France and what tax saving options are open to you? That’s what our financial service advertisers can tell you.
