Tax freedom day – how much of your income do you lose to tax?

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04.01.24
Tax freedom day

Tax freedom day varies greatly by country, but good tax planning can help reduce your tax burden, wherever you live. So, how long does it take to earn money for yourself instead of the taxman?

If you ever had the feeling that you have spent half your working life just paying tax, you’re not far wrong. What with income tax, national insurance/social security, capital gains tax, VAT, council tax, excise duties, and so on, a considerable amount of our income goes straight to the taxman each year.

Even if you’re retired, you still face tax on savings, investments, and pensions, not to mention the amount payable in VAT each year. Having paid so many taxes all your life, you’ll not want to pay more than necessary – that’s why tax planning plays such an important part in protecting your wealth.

Defining the tax burden of typical workers in the EU

For the last 14 years, the Institut Economique Molinari has been comparing the taxes payable by the average wage earner across the 28 EU member states (now EU plus the UK), measuring how many work days of each year are devoted to paying taxes. While it focuses on wages and the tax and social security employees pay, it illustrates the general tax burden of each country and how they compare to each other.

The study calculates a “tax liberation day” for each country – the date on which an employee has earned enough to pay off all taxes for the year. It also identifies the average “real tax rate” for typical workers in each country (gross salary minus all tax liabilities).

2023’s report reveals the average tax freedom day across the EU was 10 June, a day earlier than last year. 10 countries had an earlier tax freedom day this year, with Croatian taxpayers gaining 10 days, but nine countries are experiencing higher tax levies.

Cyprus had the earliest date on 16 April and next is Malta on 27 April.  France resumed its position as the country with the latest tax freedom day. Falling on 17 July it is the same as last year, but Austria’s reduced from 18 to 15 July.

When is tax freedom day where you live?

There isn’t a set day of the year when the proverbial ‘tax freedom day’ occurs everywhere – the date differs between countries. So, let’s take a look at when it arrives for you.

France

With a tax freedom day of 17 July, French employees worked 198 days in 2023 just to pay their taxes.  While the average real gross salary is €57,145, their real tax rate is 54.1%, which leaves them with a real net salary of just €26,243.

Portugal

The study reveals that Portugal’s tax freedom day landed on 12 June this year, one day earlier than in 2022.

This means that for 165 days of 2023, every cent earned by the average Portuguese employee was taken by the government in tax. The average gross salary in Portugal is €25,495, but after the real tax rate of 44.4%, workers in the country are only left with just €14,166 to spend on themselves and their families.

Spain

According to the study, Spain’s tax freedom day fell on 8 June 2023, one day later than the previous year, placing it twelfth in the rankings. This means that Spanish employees worked for 159 days of the year just to pay their tax bill.

The average gross salary in Spain is €34,989, but after the real tax rate of 43.4%, workers in the country are only left with €19,792 to spend on themselves and their families.

Cyprus

Cyprus is one of the countries where the tax burden is increasing, but it still remains the EU country with the lowest tax burden, according to this study. The real gross salary is €28,348 and the real tax rate is 28.59%, giving workers a real net salary of €20,150.  With a tax freedom date of 16 April, workers have paid off their taxes after 106 days.

Our tax and residency guides give more specific information on laws and legislation in all these countries, download them now.

What about the UK?

According to this study, the UK’s tax freedom day came as low as third, landing on 9 May, with a real tax rate of 35.2%.

However, many think tanks undertake their own research to calculate their country’s tax freedom day, using different methodologies. While the Institut Economique Molinari looks at income tax, social security contributions and VAT, the UK’s Adam Smith Institute (ASI) measures the entire tax take, including taxes that do not come directly out of the earner’s pocket.

The ASI’s approach places the UK’s 2023 date more than a month later, on 18 June. This is 10 days later than in 2022, which itself was a week later than in 2021. It’s the latest date since reliable records began in 1995 (or since the mid-eighties looking at earlier but less reliable data).

The Adam Smith Institute expects the UK’s tax freedom day to continue to fall later in the year and to hit 23 June in 2025, the latest since the early 1960s according to historical data.

How much tax did you pay in 2023?

Of course, the research is just indicative of the average taxpayer in each country – higher earners will generally have a later tax freedom day, though if you are retired then you don’t have to worry about social/national insurance contributions.

Every taxpayer is different, but if you felt you paid too much tax in 2023 now is the time to take action to see if you can mitigate your liabilities in 2024.

Tax freedom day – what more can you do to lower taxes?

In many cases, there are steps you can take to lighten your tax burden, especially on your capital investments and pensions. While we all have to pay our share of taxes, cross-border taxation is highly complex; do not risk getting it wrong or paying more than you have to. Take personalised, specialist advice on the compliant tax mitigation opportunities available in your country of residence and the UK – you may be surprised at how you can improve your tax situation.

Blevins Franks has more than 45 years of experience advising our clients in all aspects of their financial planning to help them legitimately lower their tax bills. We have teams of tax, investment and pensions specialists supporting our local advisers who have a deep understanding of regional tax legislation throughout Europe.

Contact us today.

Tax rates, scope and reliefs may change. Any statements concerning taxation are based upon our understanding of current taxation laws and practices which are subject to change. Tax information has been summarised; individuals should seek personalised advice.

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