Tax on test: do Britons pay more than most? (2024)

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.

Our 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).

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.

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%

Britain’s tax system is made up of income tax bands at 20%, 40% and 45%, plus national insurance contributions of a further 12%, with low earners benefiting from a tax-free personal allowance at £11,500, which is higher than most other countries.

Higher earners pay income and social security taxes that are on a par with the US, Australia and Spain, but which are much less than those in France, Sweden and Ireland.

VAT, levied at a standard rate of 20%, is towards the lower end of sales tax rates across the EU, though council taxes are relatively high by comparison.

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%

While Ireland remains a low-tax haven for giant multinationals, its resident population has suffered steep tax increases after its banks collapsed and it was forced into a £57bn IMF-EU bailout.

Its 20% and 40% standard tax bands are identical to Britain – but start at a much lower level. Unlike the UK’s £11,500 personal allowance, the Irish don’t have one in the same sense – rather a tax credit that reduces their bill by €3,300. After the financial crisis struck, the government brought in the emergency universal social charge, which starts at 2.5% on incomes over €13,000 but rises to 8% on incomes over €70,044. That means workers in Ireland in effect pay 48% tax on earnings above £60,000.

The government also brought in a local property tax (equivalent to ­Britain’s council tax), plus hugely controversial water charges.

VAT, at 23%, is also higher than in many other European countries. The Irish taxpayers don’t even get an equivalent to the UK’s National Health Service for all this tax, having to pay €50-€65 for each GP visit, and €2,000 a year for family health insurance ­policies. However, they enjoy a relatively high – at £192 a week – basic state pension.

After the economy expanded by 5.2% in 2016 (Europe’s fastest growth rate) and with another 3.5% expected this year, there is widespread anticipation of personal tax cuts to come.

The state’s coffers will also swell if Apple is forced to pay £11bn in back taxes demanded by the EU, which would payable to the Republic.

Garry O’Rourke of TaxAssist in Dublin, who helped compile the figures for Guardian Money, says: “Though the Irish tax system is progressive earners hit the top rate of income tax very quickly, €33,800 per annum. Generally personal tax rates in Ireland are slightly higher than the UK and they have been since the financial crisis.”

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%

What appear to be extraordinarily high tax rates should really be viewed as tax plus pension contributions. The French pay no income tax on the first €9,710 of their income, then 14% on sums up to €26,818. After that the rate is 30% through to €71,898. These rates are lower than the corresponding 20% and 40% rates in Britain, and the maximum rate – 45% – is the same as in the UK.

The huge difference is in social ­security contributions, which are vastly higher and more complex than the UK’s, but that pay for vastly higher welfare benefits.

Most taxpayers typically pay around 25% of their salary in social security, compared with 12% in the UK. But for this they receive arguably the world’s best health service, unemployment benefit typically at 65% of your former pay (up to a ceiling of about €6,000 a month, compared with £72.40 a week in the UK), and generous state pensions worth up to 50% of your former salary. If a £40,000-a-year worker in the UK wanted a state pension similar to that in France, he or she would likely be contributing similar amounts in tax as the worker in France.

The French system, though, makes Britain’s look simple, and there is a range of individual circ*mstances that play a part in how much tax people pay. The Paris-based British financial journalist who helped compile the above figures for us said: “After 25 years in France I still don’t understand the payslip you get at the end of the month. But while it costs a lot to live in France, the benefits – ­especially health and unemployment – are very good.” Additional reporting by Judith Prescott

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%

Spain’s effective tax rates are surprisingly similar to the UK’s, and its relatively low rate of tax on higher earners may explain why Madrid has emerged as the surprise competitor to Paris, Frankfurt and Dublin for Brexit-fleeing banks.
Each autonomous region of Spain has its own tax rates, with the figures above calculated for someone living in Barcelona. The highest combined state and regional tax rate is around 48%.
Chris Burke of Spectrum IFA, who calculated the figures for us, says 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%.

Germany

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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%

Basic rates of tax are around the same as in Britain (ranging from 19% to a top rate of 45%), but workers have to pay an extra 10% for state pensions, 8% for health, 1.5% for unemployment cover and 1% for care insurance. That all adds up to a lot more than Britain’s 12% national insurance but, like France, Germany’s public services and welfare payouts are regarded as far superior. We used the brutto-netto-rechner.info site to calculate take-home pay.

The “solidarity tax” of 5.5% of income tax paid (to pay for German reunification) “is due to be phased out soon, but the government is proving very reluctant to do so,” writes our Berlin correspondent, Kate Connolly.

The big shock for British taxpayers is the country’s church tax, which is 8% or 9% of income tax paid, depending on which part of Germany you live in. Under German law, anyone who has been baptised is automatically a member of the church and obliged to pay the tax, irrespective of their beliefs or whether they attend church services.

Individuals can formally renounce their church membership and stop paying the tax, but they may risk losing access to some of the country’s best schools and childcare facilities.

The tax brings in around £10bn a year, split roughly half and half between the Protestant and Catholic church.

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%

The top rate of tax is 57%, but the tax agency is nearly as popular as Abba. Swedes have a small personal allowance then pay taxes averaging 32% on incomes up to £39,000, rising to 52% on incomes up to £57,000, with a top rate of 57%. VAT is nearly the highest in the EU at 25%.

But there is broad support for a cradle-to-grave welfare system, with pensions that pay out about 60% of a person’s final salary. A church and burial tax is about another 1%-2% of income.

United States

Gross salary £25,000
After tax £19,925
Tax rate 20.3%

Gross salary £40,000
After tax £30,280
Tax rate 24.3%

Gross salary £100,000
After tax £65,800
Tax rate 34.2%

Precise tax comparisons are difficult in the US because of the myriad federal, state and local tax rates, and an equally wide range of deductions and allowances.

We chose New York state for our ­comparison, where the state taxes are relatively high. That might help to explain the surprising discovery that people on low earnings see more of their income disappear in tax than those in the UK, while high earners are taxed relatively lightly.

State and local sales taxes in New York City, at 8.875%, are markedly lower than the 19%-25% VAT rates ­common in the EU. However, property taxes are relatively high in the US, with homeowners in the New York/New ­Jersey/Connecticut area, for example, typically having to pay upwards of $5,000-$7,000 a year.

Australia

Gross salary £25,000
After tax £21,275
Tax rate 14.9%

Gross salary £40,000
After tax £31,080
Tax rate 22.3%

Gross salary £100,000
After tax £66,900
Tax rate 33.1%

Australia emerges as one of the lower tax countries in Guardian Money’s ­survey. Australians currently pay nothing on the first A$18,200 (£10,500) of their income, then 19% above that, with a top rate of 45% on incomes over £105,000 a year.

An additional 2% medical levy (which is soon to rise to 2.5%) helps to pay for public health services, though many Australians also choose to buy private insurance.

In general, Australians pay slightly more income tax than their equivalent earners in the UK, but the country’s medical levy is far lower than the UK’s national insurance contributions, leaving the total tax burden lower.

Despite this, the Australian basic state pension is about £12,000 a year and unemployment benefit is £145 a week, depending on past contributions.