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Tax havens and tax hells
A new report released this week by global accountancy group KPMG reveals that Brits are among the world's most heavily taxed people. In fact, among the world's biggest economies, only four impose top rates of income tax higher than the UK's!
Tax havens
KPMG's latest Individual Income Tax and Social Security Rate Survey covers 114 countries and finds 10 countries that charge no personal income tax at all.
Seven of these tax havens are oil-rich states whose vast income from exporting 'black gold' means that they have no need to demand income tax from their citizens. These nations are Bahrain, Brunei, Kuwait, Oman, Qatar, Saudi Arabia and the United Arab Emirates.
The three remaining no-tax countries are renowned for being tax havens for individuals and companies, thanks to their strength in offshore financial services. These three 'paradise islands' are the Bahamas, Bermuda and the Cayman Islands.
Also at the low-tax end of the survey are countries whose highest rates of income tax fall below 20%. These include many Eastern European states, a couple of African nations, and a few rich islands. Here they are:
Countries with top income tax rate below 20%
Country | Highest rate of personal income tax |
Albania | 10.0% |
Bosnia-Herzegovina | 10.0% |
Bulgaria | 10.0% |
Macedonia | 10.0% |
Belarus | 12.0% |
Macau | 12.0% |
Russia | 13.0% |
Jordan | 14.0% |
Costa Rica | 15.0% |
Czech Republic | 15.0% |
Hong Kong | 15.0% |
Lithuania | 15.0% |
Mauritius | 15.0% |
Serbia | 15.0% |
Yemen | 15.0% |
Hungary | 16.0% |
Romania | 16.0% |
Angola | 17.0% |
Ukraine | 17.0% |
Slovakia | 19.0% |
As you can see, Russia -- the world's largest country by area -- levies a top rate of income tax of a mere 13%. The economy of the ex-Soviet state has been boosted by a huge rise in oil, gas and mineral exports over the past decade.
Also, it's noticeable that tax rates are often low in poor and less well-developed countries, particularly ex-members of the former USSR. For example, in Albania, Bosnia-Herzegovina, Bulgaria and Macedonia, the top rate of tax is a mere 10%.
Tax hells
According to KPMG, the worldwide average for the top rate of income tax is 28.9%, up slightly from the 28.6% recorded in 2011.
At the top end of the tax spectrum are countries that level punitive rates of income tax, especially on their highest earners. Sadly, the UK falls close to the top of this scale, as my next table shows. This lists 20 leading nations whose top rates of tax are among the very highest:
Country | Highest rate of personal income tax |
Sweden | 56.6% |
Denmark | 55.4% |
Netherlands | 52.0% |
Spain | 52.0% |
Austria | 50.0% |
Belgium | 50.0% |
Japan | 50.0% |
United Kingdom | 50.0% |
Finland | 49.0% |
Canada | 48.0% |
Ireland | 48.0% |
Norway | 47.8% |
Portugal | 46.5% |
Australia | 45.0% |
China | 45.0% |
France | 45.0% |
Germany | 45.0% |
Greece | 45.0% |
Italy | 43.0% |
Luxembourg | 41.0% |
How to (legally) dodge tax
The good news for Britain's entrepreneurs, business owners and high earners is that our top rate of tax is set to fall to 45% from 50% with effect from 6 April 2013. However, on the other side of the English Channel, France is introducing a 75% tax rate on those earning above €1 million a year, as championed by its new Socialist prime minister, François Hollande.
One problem with having punitively high rates of personal income tax is that they encourage the wealthy and business leaders to up sticks and move to low-tax states. Indeed, it is rumoured that many of France's elite are already looking to snap up high-end properties in London in order to escape the new 75% tax rate. After all, who would willingly earn €1 for every €3 grabbed by the French taxman?
For those looking to escape to a tax haven close to these shores, Guernsey, the Isle of Man and Jersey all charge the same top rate of income tax: 20%. However, all three islands have fairly high barriers to entry, so you'll need to be pretty well off to gain residency.
Then again, there is no real need to emigrate to avoid paying excessive amounts of income tax. Indeed, there are dozens of tax breaks already widely available to British workers. Of these, the two most widely used tax breaks are:
1.
Individual Savings Accounts Close to 20 million Brits use ISAs to keep the taxman's greedy mitts off their savings interest, share dividends, bond income and capital gains. With ISA limits rising every tax year, you'd be crazy not to shelter your cash, shares and bonds inside this tax haven! Remember you can salt away £11,280 in an ISA each year. You don't even need to tell the tax man that you have this ISA!
2.
Pension contributions: When you pay into a company or personal pension, you get a refund of the tax you've paid on this income. For basic-rate (20%) taxpayers, this tax relief automatically turns an £80 contribution into £100. For higher-rate (40%) taxpayers, £60 turns into £100 inside a pension, while additional-rate (50%) taxpayers need pay in just £50 to scale this up to £100.
Other legal tax breaks worth looking into at work include salary sacrifice, Childcare Vouchers, employee share schemes, Gift Aid donations and being paid through your own limited company.
Finally, always remember that the more tax you pay, the better you're doing. In the words of Scottish whisky millionaire Sir Thomas Robert Dewar (1864-1930): "Nothing hurts more than having to pay an income tax, unless it is not having to pay an income tax."
> Dodge tax with an ISA
