Tag: infographics

  • The Budget 2025 tax calculator

    The Budget 2025 tax calculator

    This online calculator calculates your tax on employment, self-employed or partnership income, and shows how it changes under a variety of Budget proposals. It charts the marginal and effective tax rate at all income levels, and shows where you fall on that chart.

    The charts show that teachers, doctors and others earning fairly ordinary salaries can face marginal tax rates of more than 60%, and sometimes approaching 80%. We believe it’s inequitable and holds back growth. Rachel Reeves should commit to ending these anomalies.

    This Government was elected on a platform of kickstarting economic growth. It has a large majority, and probably four years until the next election. It’s a rare chance for real pro-growth tax reform. That’s all the more necessary if we are going to see tax rises.

    It’s important to note: the point of the tax calculator is not that UK tax rates are currently too high. Overall they are not; they’re low by international standards, and the average worker pays less tax on income than their equivalents in other countries. But there are earning levels at which there are anomalously high rates, and that is damaging.

    The tax calculator

    You can view the calculator full screen here.

    A quick guide:

    When it starts up, the chart shows the current UK tax marginal rates at each income point. You can enter your income and see your tax result, and your position on the chart. You can use the “tax rules” dropdown to select:

    The app will then chart the marginal rate at each income point or (if you change the top left dropdown) give you a chart of effective rate at each income point, or net income vs gross income.

    You can select a scenario in the “compare against” dropdown, and that scenario will be added to the chart (dashed red line).

    The options

    You can select options that demonstrate some of the features in our tax system that create anomalously high marginal tax rates:

    • You can choose whether you’re employed, self-employed, retired, a contractor paid under “IR35“, or a member of a partnership/LLP.
    • Once you increase “number of children” above zero, you see the effect of child benefit. This increases the income of anyone with children under 16 (or under 20 if in approved education or training) but, once their income (or that of a cohabiting partner) hits £60k, the “high income child benefit charge” (HICBC) starts to claw child benefit back. It’s completely gone by £80k. That creates a very high marginal tax rate at £60k – 58% for someone with three children, and 67% if they also have a student loan.
    • If you add “childcare subsidy” you can model the impact of the tax-free childcare scheme and the various Government free childcare hours schemes in England, Wales and Scotland. These schemes are generous – potentially worth £20k in some cases, and we classify that as increasing your income (and therefore reducing your effective tax rate). However the schemes are completely withdrawn if income exceeds £100k (with the exception of the Scottish scheme). That creates the very odd effect that someone using the schemes becomes worse off if their income exceeds £100k – a marginal tax rate well in excess of 100%.
    • The “student loan” option applies the standard 9% student loan repayment rate (or you can select other rates in the dropdown).
    • The “marriage allowance” option deals with the small element of personal allowance sharing between married couples.
    • And anyone earning £100k sees their tax-free personal allowance reduced, by £1 for every £2 of income above £100k. This isn’t an option – it happens automatically. It means the marginal rate at £100k is 62%, falling back to the “correct” amount of 47% once the personal allowance is completely gone at £125,140.

    What the marginal rates mean

    The “marginal tax rate” is the percentage of tax you’ll pay on the next pound you earn. is withdrawn results in nonsensical marginal rates It’s therefore critical because it impacts your incentive to earn that pound. It’s obvious that if 100% is taxed you’ll have a lower incentive than if 0% is taxed; and the.same is true for 70% vs 40%. We’ve written a fuller explanation of the precise meaning of “marginal tax rate”, and why it’s so important.

    If you turn on all the “options” you’ll see a series of very high marginal rates across the UK, over 70% in some cases. The rates are even higher in Scotland (the red dashed line):

    The marginal rate from the marriage allowance and the childcare subsidies is so high that it goes off the above chart. So it’s clearer if we plot net income vs gross income:

    The marriage allowance is so small that it’s invisible in this chart (it’s a largely pointless piece of complication). The withdrawal of childcare subsidies, however, completely distorts the picture. When you earn £100k, you immediately lose these. So in this chart, with someone receiving £20k-worth of childcare subsidies, they are suddenly £20k worse off when they earn £100k, and their net income doesn’t recover to where it was until their gross income reaches £152k (or, in Scotland, £170k.)

    There are other minor effects which, for simplicity, our calculator does not cover.

    One issue not covered by the calculator is the high marginal rates impacting working people receiving benefits (other than child benefit). This improved significantly after the introduction of universal credit, but problems remain, particularly around the interaction with child benefit. Benefits are outside our expertise and therefore are not covered by this article or our calculator.

    What are the real world effects?

    Thanks to a recent series of Freedom of Information Act applications by Tom Whipple at The Times, we can see that large numbers of people take steps to avoid these high marginal rates:

    That pronounced “bump” at £100k represents approximately 32,000 taxpayers managing their income so it doesn’t go past £100k. However it’s important to recognise that counting the people in the “bump” gives us a lower bound: there will be others who hold back their income above or below the £100k point, but outside the visible “bump”. There will be others who respond to the incentives by ceasing working altogether or leaving the UK (anecdotally there are large numbers of professionals moving to Dubai; however there’s no hard evidence as to the scale of the effect).

    This, however, is nothing compared to the “bump” at £50k – there are 230,000 taxpayers there. Again this is a lower bound.

    This is from tax year 2022-23 when the child benefit clawback was at £50k – this will be an important cause of the bump, but we expect there are three others.

    These “bumps” reflect broadly three taxpayers responses:

    • No change in economic activity (i.e. working hours) but taking steps to legally reduce taxable income. The most obvious example is making additional pension contributions and/or salary sacrifice. Additional pension contributions are an attractive option to people nearing retirement, but unattractive for people at the start of their careers.
    • No change in economic activity but tax evasion – i.e. self-employed people artificially depressing their income by not declaring income over £50k to HMRC.
    • Actually reducing their income – for example self-employed contractors turning away work, or employed staff working fewer hours (or even, in at least three cases we’ve heard of, refusing promotions).

    Both outcomes reduce the tax people are paying. However the second outcome has an obvious wider effect – it’s reducing the supply of labour.

    We’ve heard anecdotally from managers unable to persuade staff to work more hours, or return to work full time – it’s a particular problem for hospital managers, as junior consultants’ pay is within the £100k “trap”.

    But it’s important not to just focus on the impact on jobs that we might think are of particular societal importance.

    It’s also problematic if an accountant or estate agent turns away work because of high marginal rates – it represents lost economic growth and lost tax revenue. It also makes people miserable.

    Inflation and frozen thresholds mean the problem is getting worse each year – the data The Times obtained shows much larger “bumps” in 2022/23 compared to 2021/22. So 2025/26 will be considerably worse:

    What’s the solution?

    These problems are getting worse over time, as fiscal drag takes more and more people into the thresholds that trigger these high marginal rates.

    When Gordon Brown introduced the personal allowance taper in 2009, only 2% of taxpayers earned £100,000; by 2026/27 about 6% of taxpayers will. When George Osborne introduced child benefit clawback a year later, only 8% of taxpayers earned £50,000; by 2026/27 about 17% of taxpayers will earn £60,000.

    This creates a double problem. First, the economic distortions created by the high marginal rates start to impact into mainstream occupations (doctors, teachers). Second, the revenues raised by the marginal rates are now so great that they become hard to repeal.

    Ending the high marginal rates in one Budget is, therefore, not realistic – particularly in the current fiscal environment. The cost of making child benefit, the personal allowance, and childcare subsidies universal, would be expensive (somewhere between £5-10bn, depending on your assumptions). The obvious way of funding this – increasing income tax on high earners, appears to have been ruled out.

    We would suggest five modest steps:

    • An acknowledgment that the top marginal rates are damagingly high, and that the Government will take steps to reduce them when economic circumstances permit.
    • Some immediate easing of the worst effects, at minimal cost to the Exchequer, for example by smoothing out the personal allowance taper over a longer stretch of income, therefore reducing the top marginal rate, and slightly increasing the additional rate so that the measure is revenue-neutral overall.
    • A commitment to uprate the thresholds for clawback of child benefit, personal allowance and childcare subsidy in line with earnings growth or inflation.
    • A commitment that no steps will be taken to make the high marginal rates worse, or create new ones.
    • A new rule that Budgets will be accompanied by an OBR scoring of the highest income tax marginal rates before and after the Budget.

    There’s a coherent political case for people on high incomes paying higher tax (whether we agree with it or not). There is no coherent case for people earning £60k, or £100k, to pay a higher marginal rate than someone earning £1m. It’s inequitable and economically damaging. Ms Reeves should call time on high marginal rates.

    Code

    The code for the calculator is available here. If you want to experiment with different rates you can download all the files and run “index.html” locally. You can then edit “UK_marginal_tax_datasets.json” and add different scenarios.

    The data showing the “bumps” is available here. Many thanks to The Times for sharing it with us, and letting us publish it.

    Footnotes

    1. Please note that the calculator is intended to illustrate tax policy. It is not designed to actually calculate your tax for your tax return, and should not be used for that purpose. ↩︎

    2. Note there is no limit on how many children you can have for child benefit purposes – and that produces some extremely high marginal rates if you select e.g. six children. ↩︎

    3. The way the childcare free hours schemes work is complex and varies considerably from individual-to-individual – the calculator doesn’t attempt to provide a detailed analysis but simply lets you enter the amount of overall subsidy. ↩︎

    4. Which provides up to 1140 hours of free childcare. This isn’t means-tested. However the tax-free childcare scheme is means tested, even in Scotland. ↩︎

    5. It can be expressed as 2,000,000% if we look at the loss of income for someone with £20k of free childcare who was earning £100k but receives a £1 pay rise. However in reality the concept of a marginal tax rate has little meaning in such circumstances. ↩︎

    6. Noting of course that Scottish students don’t have to pay tuition when studying at Scottish universities, so their student loans will be much lower. The full rate is really only relevant to graduates who studied elsewhere in the UK and then move to Scotland. ↩︎

    7. The calculator calculates your marginal rate over £100 rather than £1. That’s necessary because the personal allowance taper reduces the personal allowance by £1 for every £2 of income over £100k. If the marginal rate is calculated over £1 then it produces a different result for even numbers than odd numbers, which doesn’t make sense. The choice of £100 is arbitrary, but has no effect other than to change the (essentially meaningless) childcare subsidy marginal rate. ↩︎

    8. Although the Scottish childcare scheme is less generous and so this problem is usually less extreme in Scotland. ↩︎

    9. The £1,000 personal savings allowance drops to £500 once you hit the higher rate band, and to zero once you hit the additional rate band. The £5,000 starting rate for savings tapers out, but slowly, and so it just somewhat increases the marginal rate – it’s also less relevant for most people. ↩︎

    10. First, people responding to the increased marginal rate of the higher rate tax band – but this effect should be small (when the marginal rate rises from 28% to 42% that means take-home pay on the next pound is reducing by about 20%). Second, people irrationally responding to the higher rate band – we found evidence that a large number of people believe that when you cross the higher rate threshold, you pay a higher rate of tax on all your income. Third, owners of small/micro businesses whose income fluctuates year-by-year managing the profits they take out so they don’t cross the higher rate threshold. It should be possible to definitively establish the impact of child benefit clawback when we obtain data on 2024/25, the first year when the child benefit clawback threshold was moved to £60k. ↩︎

    11. It ought to be possible to check the extent of this by comparing the data for taxpayers on PAYE with other taxpayers, i.e. because tax evasion is not generally practicable for people on PAYE. A more sophisticated analysis would look at the way reported taxable income changes over time, as the income increases and as it decreases. ↩︎

    12. Particularly when the economy is running at very little spare capacity; it would be different if there was high unemployment/plenty of spare capacity, because the work that was turned away would (at least in theory, in the long term) be undertaken by others ↩︎

    13. Data from the HMRC percentile stats, uprated for post-2022 inflation. ↩︎

  • Are UK workers over-taxed? The answer in three infographics

    Are UK workers over-taxed? The answer in three infographics

    There’s a tax paradox in the UK. Overall, we’re paying more tax as a percentage of GDP than at any time since the 1940s – and most people believe they’re over-taxed. Yet, at the same time, the average UK worker paid less tax on their wages in 2024 than any year since the War, and less tax than their counterparts in any other large European country.

    How can this be?

    This is the first part of a series on the tax mess that the UK is in… and what we can do about it.

    How can we fairly compare taxes on wages?

    Comparing like-for-like across different countries is not straightforward – wage structures and tax and benefit systems are all very different. Fortunately, the OECD has done all the hard yards, with decades of work analysing the “tax wedge” – the proportion of labour cost paid in tax for the average worker. This includes income tax, and both employee and employer national insurance/social security. It also includes cash transfers (which can be viewed as negative tax) – for the average UK worker that means child benefit.

    We can use the OECD’s most recent data to chart the tax wedge for every country in the OECD, looking at the average wage of a single worker, a single-earner family with two children, and a dual-earner family with two children..

    The chart shows all three datapoints for each country. It’s interactive, so you can click on a point and see the precise numbers, and reorder the chart using the dropdown box at the bottom right. On mobile you’ll need to view in landscape mode. There’s a full screen version here.

    Tax wedge across the OECD

    The result is striking – the UK has one of the lowest tax wedges in the OECD for single workers and dual-earner families, but a comparatively higher tax wedge for single earner families (but still lower than average). The reason is simple: in many countries (like France) the family is taxed as a unit, meaning that the single wage is split between either the parents or the entire family, therefore bringing the earnings into lower tax brackets. In the UK this doesn’t happen, and there is only a small tax benefit for married couples.

    Here’s how the picture changes if we look at different income levels.

    This interactive chart plots tax wedge against % of average income for the ten largest European OECD members, plus the US and Canada. You can change the taxpayer type with the dropdown at the top right, and add/remove countries by clicking on the legend on the right hand side. Again, on mobile you’ll need to view in landscape mode. There’s a full screen version here.

    Interactive chart: compare the UK tax wedge with every OECD country at different income levels.

    The 0 to 193% x-axis covers incomes up to roughly £100,000 in UK terms. (Why such an odd cut-off? And why is the “average” £50k? See the methodology below!)

    Some thoughts:

    • Single workers: At every wage level the UK tax wedge sits well below that of all the other 10 largest European economies.
    • With kids, the picture shifts: Poland becomes much lower tax than the UK, at all levels. Perhaps unexpectedly, the Netherlands edges below the UK.
    • Higher earners with kids: from about 150 % of average income, Germans with kids also pay less tax than their UK counterparts.
    • A UK single worker on the average wage pays less tax than their Canada and the US counterparts, but more once we reach about 120% of average wage (£60k). Marriage immediately lowers the US rates. Children take the US and Canada rates well below the UK’s.

    The simple story is that, at all points, French, Italian, Scandinavian, Spanish etc workers pay around 50% more tax on their wages than a comparable earner in the UK. For other countries things are more nuanced, with some surprising countries (Germany!) becoming lower tax than the UK once kids are in the picture.

    How did the UK’s tax wedge change over time?

    Here’s the data from 1979 to 2024, and my estimate for 2025:

    UK tax wedge starts at 33% in 1980, going down to 31% in the 90s, up in the 2000s to 34% and down to 32% today.

    The degree of change here should not be exaggerated – peak to trough represents about £1,500 for a median earner (in today’s money), and the 2024-to-2025 change about half that.

    The recent bump downwards in 2024 was caused by Jeremy Hunt’s cut in employee national insurance, which took tax wedge from 31.3% to 29.4%. The tick up to 31.4% in 2025 is thanks to the rise in employer national insurance in the October 2024 Budget.

    Unfortunately the OECD tax wedge data in its modern form only starts in 1979, but the higher rates of income tax (30% to 45%) and lower personal allowance (never more than half the current level, in today’s money) mean we can be reasonably confident that the tax wedge on the average single worker was higher in previous decades.

    What does it all mean?

    My conclusions:

    • Most people in the UK on low, moderate or reasonably high earnings (i.e. up to about £100k) pay less tax on their wages than their counterparts in other large developed countries, with the notable exception of the US.
    • 2024 set a post-war record: the average UK worker paid less wage tax than at any time since the 1940s. 2025 nudged upward – back to roughly 1990s levels, which were already the lowest in the modern era.

    But we started with:

    How can all these things be true at the same time?

    I’ll write about that next week.

    Methodology and limitations

    All of this is based on the OECD tax wedge data:

    • The source for the UK 1979-1999 numbers is this 1999 OECD report.
    • The source for the 2000-2024 numbers recent numbers is the excellent OECD data explorer. You can click here and see the exact data for this chart here.
    • The estimate for the UK tax wedge in 2025 is our simple approximation based on the OECD 2024 average wage data, ONS data on the rise in average earnings, and tax changes in 2025/26.

    There’s an excellent paper explaining the tax wedge, and its uses and limitations, here.

    Note that the tax wedge is very different from the marginal rate. The “tax wedge” tells you how much of your overall wage packet goes on tax. The “marginal rate” tells you how much of the next pound you earn goes on tax.The marginal rate is critically important because it affects incentives – and the UK income tax system has unfortunately created a horrible mess of marginal rates. I wrote about that here.

    An important point of detail is that “average worker” doesn’t mean “median worker” (and I misunderstood this myself until recently, for which my apologies). The “average worker” is a concept the OECD defines so that it can make a like-for-like comparison across different countries. So instead of the usual approach of taking the median of all full-time employment, it covers a specific mix of sectors, job-types and seniority levels, which are applied in the same way to each country. In the UK that means the OECD “average” wage is considerably higher than the median wage – £51,310 in 2024 rather than £37,340, and therefore the tax wedge for the median worker will be lower than the figures shown here (about 28% for 2024 instead of 29.4%).

    These kinds of international comparisons can only ever tell part of the story. A few caveats:

    • The charts don’t include VAT. You can see the complete picture here – OECD countries tend to have similar levels of VAT, with the big exception of the US. Most US States have a sales tax, but it’s typically less than 8% and applies to a narrower range of goods and services than VAT. So whilst the charts above show the UK worker as comparably taxed to their US equivalent, once VAT is taken into account we can be confident the UK worker is more highly taxed. But VAT won’t change the picture much when we compare the UK against other OECD countries.
    • On the other hand, a US worker may pay less tax, but has to pay for healthcare (either directly or via insurance from their employer, which in the long run is paid by employees in the form of lower wages). In an ideal world this would be built into the data, but that’s far from straightforward. You can compare private healthcare spending here.
    • The charts also don’t include annual property taxes. In the UK that’s council tax. In many parts of the world, including most US states, it’s an annual levy on the value of property. Council tax is rather low in international terms for people living in high-value property, and rather high in international terms for people living in low-value property.
    • There are other smaller differences – for example in Germany you have to pay for your bins to be collected by the local authority.

    And finally one obvious point: tax doesn’t usually just go up in smoke – countries with higher tax tend to have better funded public services. Whether you’d prefer a country more like the US (with lower tax and less expansive public services than the UK) or more like Denmark (much higher tax, much more expansive public services) is a political question that no chart can assist with.

    Many thanks to P for help with the coding, and to the OECD – both for creating the data and making it so easily accessible to the public. It’s a triumph of open data.

    The code that created the interactive charts is available here.

    Footnotes

    1. See this Survation polling from November 2023, Table_Q4. Considering the levels of various taxes such as Income Tax, Council Tax, Value Added Tax (VAT), National Insurance, Excise duties and others, do you believe you are currently ‘Paying too much tax’ (52%), ‘Paying about the right amount of tax’ (27%), ‘Paying too little tax’ (8%), ‘Don’t know’ (13%). ↩︎

    2. Polling from the Mile End Institute at Queen Mary University of London found that 54% of Londoners thought they were over-taxed. ↩︎

    3. Because the evidence is that, in the long run, the economic burden of employer national insurance/social security falls on employees in the form of lower wages. ↩︎

    4. Many tax systems provide a more favourable result for families. In some countries there are cash benefits for people on average income with children (like child benefit in the UK). In other countries (like France) there’s a tax credit for people with children. In others (like the US) there’s a child tax credit that is refundable in cash for taxpayers on low income. The tax wedge calculation takes all credits and cash benefits/transfers into account. ↩︎

    5. where one earner is on the average wage and the other on two-thirds of the average wage ↩︎

    6. That’s because of the Family 800+ cash non-taxable benefit (which alone is worth about 20% of the median Polish gross wage), the refundable child tax credit (which can eliminate most income tax for low and moderate earners), and a series of other smaller cash benefits. ↩︎

    7. In part because German marginal income tax rates fall considerably once wages hit the Beitragsbemessungsgrenze (the contributions ceiling) ↩︎

    8. The early data points are a little sparse, but the big moments are Nigel Lawson’s 1988 cut of the basic rate to 25%, and the use of fiscal drag in the 2000s by Gordon Brown to significantly increase tax and increase funding on public services – part of that involved freezing the personal allowance, and therefore increasing the tax wedge. ↩︎

    9. The basic rate of income tax was 45% in the 1940s and the personal allowance was (in today’s money) about £6,000. The rate wobbled around the high 30s and low 40s through to 1972, when Anthony Barber’s first Budget he unified income tax and introduced a 30% basic rate. It then went up to 35% under the Labour Government. The personal allowance was eroded in the 1990s, went up significantly from 2010 to 2020, and has since been eroded by inflation, but remains higher than at any time before 2008. The Family Allowance and (later) child benefit are broadly comparable to today’s figures in real terms. ↩︎

    10. Imagine a country where there is zero tax until you earn £50,000 and then 50% tax after that. If I earn £50,000 my tax wedge is zero; my marginal tax rate is 50%. ↩︎

    11. For the earlier years of the OECD Taxing Wages series, this was the “Average Production Worker” (APW), which was focused on full-time manual workers in the manufacturing sector. This later evolved into the broader “Average Worker” (AW) definition. See Annex A, page 652 here. This is one of the reasons why pre-1979 datasets can’t be compared with later datasets. ↩︎

  • Our webapp shows 50,000 UK companies hide their true ownership

    Our webapp shows 50,000 UK companies hide their true ownership

    UK company law requires every UK company to disclose the individuals who control it – their “person with significant control” (PSC). But the rules are widely ignored. We’ve found that around 50,000 UK companies hide their true ownership by unlawfully listing a foreign company as their PSC – that’s not permitted. And we’re publishing an interactive map showing all 50,000.

    Companies House initially enforced the PSC rules with prosecutions – there were 43 in 2016. But prosecutions dwindled over time, with none at all in 2022, and only four in the first quarter of 2023.

    You can jump straight to the interactive map here, but please do read the limitations and caveats below – the map provides an accurate overall picture, but no conclusions should be drawn about an individual company without a manual review to check the position carefully.

    UPDATED 24 March; significant updates – view the UK companies on the map, show links between companies, much better UI, more refined scope (excluding worldwide listed companies).

    The PSC rules

    Historically, Companies House showed who the shareholders of a company were, but stopped there. So if, for example, a company was owned by a tax haven holding company, you wouldn’t be able to ever find out who the ultimate shareholder was.

    This all changed in 2016 – rules were put in place requiring companies to identify their “persons with significant control” – meaning the actual humans who were able to tell the company what to do. Normally this would be the ultimate shareholder – but sometimes there would be someone who wasn’t a shareholder, but who nevertheless could ensure that the company always adopted the activities they desired. They too would be a “person with significant control”.

    So, let’s say a secretive oligarch establishes a UK company with some local directors. The shares in the company are held by a Panamanian company, and that in turn is held by the oligarch’s personal chef. Pre-2016, any Companies House search stopped dead in Panama. But today, the company should register the oligarch (not the Panamanian company, and not the chef) as the “person with significant control”.

    And that’s the whole point of the rules – to enhance corporate transparency and help stop the abuse of companies for nefarious purposes.

    How are the rules ignored?

    Some people, like Douglas Barrowman, arrange for their companies to report a false PSC – often an employee (i.e. analogous to the personal chef in the oligarch example).

    Others simply fail to file a PSC at all.

    But a common approach – sometimes an error, sometimes intentional, is to file a foreign company as the PSC. So, in the oligarch example, the Panama company would be listed as the PSC. This, however, clearly isn’t permitted. The PSC has to be an actual living breathing person. Listing a foreign company as a PSC breaks the whole purpose of the rules – that we should be able to find out who really owns a company.

    There are a few exceptions:

    • UK companies – they can be listed as a PSC… the idea is that you can then check the PSC for that company.
    • Companies which are widely held, so that no one person has more than 25% of the shares or voting rights in the company.
    • Companies listed on a stock exchange/regulated market.

    There is a useful summary of the rules from law firm Clifford Chance LLP.

    The map

    Our map shows all the location of all the foreign companies that are listed as PSCs, hiding the true ownership of a UK company.

    There are about 50,000. Not all will be illegitimate – we discuss the limitations of our approach below. However we believe the vast majority are breaking the law.

    Each dot is a PSC for a UK company. The dot is:

    • Green where the UK company is an active company
    • Orange where the UK company files dormant accounts (in most cases it will really be dormant, but many fraudulent companies file as dormant to avoid scrutiny)
    • Red where the UK company is listed by Companies House as being in default in some way – either it failed to file its accounts, mail sent to its registered office is being returned, or its registered office is being disputed (i.e. it is “squatting” at someone else’s address – often a sign of fraud).
    • Grey where the foreign company has ceased to be a PSC. This could be because they realised their error and corrected the register.
    • Black where the UK company is dissolved.

    Click on a company/dot to show its details.

    Click on the coloured dots in the legend to enable/disable the different categories – when the map loads, dissolved companies and former PSCs are not initially shown, but you can click on them and change that. Or, for example, you can deselect the green and orange dots, and just show the red – companies which may be in default.

    Search for companies using the search window at the top right. The code will search through both UK and foreign companies, and show you all the PSCs matching your text. Click on one and the map will jump straight to it.

    Click “share” to generate a link that will take others to the company you’ve identified – it saves location and popup state.

    You can view a full screen version here (previously we embedded the map on this page, but a number of people said that wasn’t working very well).

    Note that the app runs locally on your device, so any searches you make are only visible to you.

    An example

    Douglas Barrowman has a reputation for hiding the ownership of his companies. His most well-known business is the “Knox” group. So let’s search for Knox (this link replicates my search):

    Sure enough, Knox Capital Solutions (UK) Limited is listing an Isle of Man company as its PSC. We can’t see any lawful basis for this.

    What are the limitations of the map?

    To create the map we analysed Companies House PSC data to find all the PSCs that are foreign companies. We excluded listed companies and US stock exchanges. There’s no obvious source for global listed companies – we ended up using this. We then geolocated each PSC and UK company.

    This is an imperfect approach:

    • Companies list their addresses in many different ways; often they make mistakes (typos like “Enlgand”). We tried to deal with this, but weren’t completely successful. So we have accidentally included some UK PSCs which are not breaking the law; they just didn’t enter their address correctly. That’s why you see a handful of PSCs on the map in the UK.
    • Whilst we’ve tried to exclude listed companies, the process is imperfect and some will have slipped through, e.g. because of differences in spelling between different lists, or because the named PSC is not itself the listed company.
    • A company that’s widely held (with no person holding 25%) has no PSC. Some widely held UK companies incorrectly show their immediate foreign holding company – there is nothing untoward going on here, but they will show up on this map when they really shouldn’t. So, for example, the US company Chatham Financial Corporation is shown as the PSC for Chatham Financial Europe, Ltd. Chatham is employee owned – nobody has 25% ownership – and so the PSC entry should expressly say that there is no PSC. Hence Chatham’s entry is technically wrong, but clearly not a case where someone is hiding ownership… it doesn’t really deserve to be on the map.
    • The map includes dissolved UK companies. That is intentional, because people shouldn’t be able to walk away from a company and leave breaches of company law unfixed (although, rather unsatisfactorily, there is no way to correct entries for dissolved companies, and Companies House currently makes no effort to correct them). But dissolved companies, and former PSCs, are switched off when the map loads – you can enable them by clicking on the legend.
    • The geolocation won’t always be accurate, particularly when (as is often the case) companies provide incomplete or incorrect addresses.
    • With this large number of companies there’s no possibility for reviewing the entries manually – so it’s all dependent on the code, and that can easily make mistakes. Nobody should make any firm conclusion about any individual company listed without checking it out carefully.

    However the vast majority of the 50,000 companies on the map don’t fall in any of these categories.

    Are criminal offences being committed?

    We should be forgiving in many cases. Companies House lets companies submit any old nonsense in their PSC filings. Many people just don’t understand the rules. The Companies House systems should pop up a warning if a company tries to enter a foreign company as the PSC.

    Nevertheless, most of the dots on the map represent a criminal offence. There’s a specific requirement that, where someone knows they control a company, but they haven’t received a notice from the company requiring them to provide information, then they have to tell the company that they do in fact control it. If they don’t do this, then they commit an offence – with up to two years’ imprisonment, and an unlimited fine.

    There is also a general offence of filing false documents with Companies House; if the documents were filed recklessly or intentionally then it’s punishable by up to two years in jail.

    We wouldn’t suggest that there should be 50,000 prosecutions, or even 1,000 – but the most serious cases, involving either actual fraud or substantial companies (who should know better) should not just be ignored.

    One serious problem: these rules, like all UK company law, are essentially unenforceable against foreign directors. That should change. We should require companies with no UK directors to appoint a UK law firm or other regulated professional as their agent, responsible for their filings.

    How many PSC breaches are prosecuted?

    Almost none. We obtained data from the Crown Prosecution Service showing prosecutions for breaches of the PSC rules from 2016, the year the rules came into force:

    The full FOIA response is here. We have written to request updated data.

    The code

    The underlying data, html, javascript and css files that create the webapp are all licensed under the usual  Creative Commons BY-SA 4.0 licence (unless it says otherwise). In short, you may freely use any of this for any purpose, and adapt it how you wish, provided you attribute it to Tax Policy Associates Ltd. 

    The scripts that generated the data can be found on our GitHub.

    Many thanks to J for the original idea, P for help with javascript, and R and A for feedback. Thanks most of all to the authors of the javascript libraries that power our map: jQuery, Leaflet and LZ-String.

    Footnotes

    1. The original version of the map showed 65,000. We’ve since refined the approach and excluded companies that we believe are likely to be compliant; that reduces the number to 50,000. ↩︎

    2. The legislation starts here, and is fairly easy to read – there’s also useful (statutory) guidance ↩︎

    3. This wasn’t in the first version for technical reasons; we’ve now added it. ↩︎

    4. The app does save a cookie so you only see the tutorial once, but does nothing else with it. ↩︎

    5. It’s easy to find all the companies listed on the UK stock exchange. An important point we missed in the original map is that some UK companies are owned by foreign companies which are listed on a UK stock exchange. This isn’t a small effect – there are about 600. They were wrongly included in our original map and are now excluded. Our apologies. ↩︎

    6. Some of these won’t be on regulated exchanges, but as a practical matter we think that the great majority will be widely held in any event. ↩︎

    7. Thanks to those who suggested this approach ↩︎

    8. Perhaps along the lines of “you should not do this unless you have obtained legal advice. The consequences of getting this wrong could include prosecution. Type ‘I understand and accept this’ to continue.” ↩︎

  • Map of MPs’ donors and interests

    Map of MPs’ donors and interests

    Which MP is the highest earner? Who receives the highest donations? Who takes the most foreign trips? We’ve just launched an interactive map that lets you explore all this and more.

    Apologies – this is currently down… the map needs to be updated. We hope to get to this soon.

    There’s an important political debate about what gifts an MP should accept, and what outside roles are appropriate. We’ll leave that to others. However, we do think it’s important for MPs’ gifts, donations, earnings and other financial affairs to be publicly visible.

    So we’ve launched an interactive map. You can use it directly below, or click here for a full screen version.

    How to use it

    Hopefully the map is reasonably intuitive, but this is a quick guide:

    • Change the “shading” box on the left to shade the map to show donations (i.e. gifts made for political campaigning), gifts (i.e. personal gifts), earnings, foreign trips, shareholdings, etc
    • Then you can zoom in and click on individual constituencies to see all the data for individual MPs, all cross-linked from every source we could pull data off.
    • When looking at foreign trips, you can click the “world map” button to see the countries MPs have visited.
    • Or enter text in the “category” box to e.g. see all trade union funding.
    • Or enter text in the “donor” box to see all donations/gifts from particular individuals/companies. Note that you may need to zoom in to see the shading for smaller constituencies (particularly London).

    Limitations

    All donations, employment, paid trips, and other benefits are reported by MPs, and Parliament publishes a register of them. We used Parliament’s fantastic API (together with the Companies House API) to create this interactive map.

    The data is often not very good – there are many errors, particularly around company and individuals’ names. We tried to fix and match them as well as we could. But the errors suggest that there is no checking of data by Parliamentary authorities – we’ll be writing more about this soon.

    Please do leave comments below, either with suggestions for improving the map, or if you find anything interesting. Or drop us a line (using the About/Contact menu option at the top of this page).

    Other sources

    There are other similar projects:

    Please let us know if we’ve missed any.

    Many thanks to the brilliant M, who wrote the code that powers the map. He’s done something amazing, for no pay or reward of any kind, and doesn’t even want to be credited.

    The map is © M and Tax Policy Associates Ltd (as his agent), and licensed under the Creative Commons BY-SA 4.0 licence. That means you can freely refer to it, copy it, and use it however you wish, provided you credit M and Tax Policy Associates Ltd.

    Footnotes

    1. To answer a question that’s often raised – there are usually no tax implications from gifts, which is why we haven’t commented on the recent controversies. Gifts from an employer are taxable. Gifts made by someone who dies within seven years can be subject to inheritance tax. Gifts to trusts and companies can sometimes have an immediate inheritance tax charge. But gifts (meaning gratuitous payments which are not in exchange for something valuable) made to individuals by someone who isn’t an employer aren’t subject to income tax. The exception, as someone pointed out in the comments, is where the gift is related to the employment and coming from someone who has received services, like a tip (the authority for that is Calvert v Wainwright) – there will be evidentiary challenges proving that any gift to an MP is for services rendered (and indeed likely more serious adverse consequences for the parties than tax). The foregoing reflects the conventional view, but some very knowledgeable people have suggested in the comments below that there may be in some cases a question as to whether it is correct. This may be something we look into further, but (having made extensive enquiries) the practical answer seems to be that nobody – HMRC or advisers – can recall a politician being taxed on a gift they receive. ↩︎

    2. It is sometimes suggested we should change the law so MPs are taxed on gifts – we don’t see the case for that. There is a rational case that gifts should be banned, and a rational case that gifts should be permitted. Permitting them, but subjecting them to a uniquely punitive tax regime, doesn’t seem justified. ↩︎

  • The state of play of open corporate data

    The state of play of open corporate data

    Our proposal to end offshore secrecy, and move the world towards open registers, is here. But right now, the world looks like this:

    The interactive chart above shows how open each country’s corporate registry is. All thanks to data from opencorporates.com, and you can click on a country to go to the individual assessment. Full screen version here.

    Or we can focus on beneficial ownership registers, and look at whether each country has a register, and whether it’s “open” (available to everyone), or “closed” (available only to law enforcement) and whether they’re open or closed. You can click through to go to each country’s register’s website:

    Full screen version here. Beneficial ownership register data from openownership.org.

    All code by Tax Policy Associates Ltd, and available on our GitHub here. Many thanks to opencorporates.com and openownership.org.

    Photo by CHUTTERSNAP on Unsplash

  • Why the general election tax debate is irrelevant

    Why the general election tax debate is irrelevant

    The general election tax debate has been irrelevant. The few £bn being discussed is dwarfed by the actual tax UK tax increases over the last few years, and the further tax increases we’ll almost certainly see in the future.

    I summarised this point on Sky TV on Wednesday.

    Here’s all UK taxes paid in 2023-24:

    Here’s what happens if we add on the Conservative Party’s extremely debateable claim that Labour will increase household taxes by £2,000 over four years – that’s about £10bn in total:

    £10bn is just an irrelevance in the context of almost a trillion pounds of total tax receipts. And it vanishes into statistical noise when we remember that OBR tax receipt forecasts are lucky to get within £30bn of the true figure.

    And here’s Labour’s actually announced tax increases::

    Also an irrelevance.

    By contrast, here’s the OBR’s projections for the overall increase in taxation as a % of GDP from 2023/24 to 2028/29:

    The bigger picture

    The current level of taxation follows a few years of significant increases in tax.

    Here’s how much of the 2023/24 tax burden reflects an increase since 2010:

    And here’s the OBR’s expected overall increase in taxation from 2010 through to 2028/2029:

    This is dramatic, but not in the main the result of policy choices – it’s largely a function of demographic change and systemic shocks from the financial crisis and the pandemic (and, to a smaller degree, Brexit). And any attempt to convert these figures into “per household” numbers would be highly misleading given that many ordinary households have not seen an increase at all.

    The European picture

    Even the charts above leave us a long way off European levels of taxation.

    Here’s the additional tax we’d be paying if we increased UK tax to the average 2023/24 level in the Euro-area:

    And here’s the increase if we matched France:

    The difference is massive – more than the total UK VAT and corporation tax receipts.

    The tax debate I’d like to see

    So my plea to everyone is: stop discussing irrelevant amounts of tax as if it matters.

    Here are three honest positions politicians could take:

    • Accept the status quo, and that the UK will, by 2028/29, pay about £100bn more tax than it did in 2010/11 (in 2023/24 money). Make changes at the margins but acknowledge that’s all they are. The question then is: where will this burden fall? And what will the consequences of that be?
    • Advocate for significantly lower taxes, and (assuming you don’t want to crash the markets) explain which public services you’ll cut to fund the tax cuts, and the consequences of this for households and the wider economy.
    • Advocate for a significantly higher level of state spending, comparable with the European or even French figures. Again assuming you don’t want to crash the markets, explain what taxes you’d increase, and the consequences of that for households and the wider economy. And expect everyone to be sceptical if you claim only the rich would pay, because that’s not what happens in any of the countries that actually do have significantly higher spending than the UK.

    And let’s please try to be careful not to fall for simple stories about political parties and levels of tax. If we take tax as a % of GDP over the last eighty years, and shade in periods of Labour government (red) and Conservative government (blue), it’s reasonably clear that the economic cycle has been much more important than the political cycle:

    Finding answers is hard – but let’s at least try to ask the right questions.

    Footnotes

    1. The source is the receipts figures from the OBR’s public finances databank. This is the raw data – the only change I’ve made is aggregating taxes that raise less than £3bn into the “other taxes” bucket. The OBR’s most recent economic and fiscal outlook is here. ↩︎

    2. Here I’ve just taken their £38.5bn over four years and divided it by four, i.e. £9.6bn. ↩︎

    3. The most recent error was £36bn – see the OBR’s October 2023 forecasting evaluation report, table 3.1. ↩︎

    4. About £10bn in total – a very similar amount to the Conservative estimate, but raised from different people. £5bn from “cracking down on tax dodgers“, £1.7bn from VAT on private school fees, about £1bn from “closing non-dom loopholes“, about £2bn from extending the energy “windfall tax” ↩︎

    5. The source is the receipts figures from the OBR’s public finances databank. The tax increase is calculated by simply taking the difference between tax receipts as a % of GDP in 2023/24 vs 2028/29 (1.2%), and multiplying this by the UK GDP figure used in that same dataset. This results in £30bn. We’d of course get a much larger number if we looked at the real terms difference between cash tax receipts over that period – £114bn – but it’s a fairer comparison to calculate by reference to GDP. ↩︎

    6. Same OBR source. The tax increase is calculated by simply taking the difference between tax receipts as a % of GDP in 2023/24 vs 2010/11 (2.7%), and multiplying this by the UK GDP figure used in that same dataset. This results in £70bn. We’d of course get a larger number if we looked at the real terms difference between cash tax receipts over that period – £216bn – but it’s a fairer comparison to calculate by reference to GDP. ↩︎

    7. Same methodology but looking at the 2028/29 OBR receipts figures and forecast. The increase in tax as a % of GDP over this period is 3.9% which equates into £100bn in 2023/24 money. If we look at the real terms difference between cash tax receipts over this period we’d get £330bn. ↩︎

    8. Source is Eurostat – average 2023/24 figure is 41.9%, equating to £152bn more tax if we apply to UK GDP for 2023/24. We aren’t aware of projections for 2028/29, but we assume the figure will be materially higher. So the fair comparison isn’t with the 2028/29 chart immediately above, but the 2023/24 chart before that. ↩︎

    9. Source again is Eurostat – the French figure for 2023/24 is 49%, equating to £334bn more tax if we apply to UK GDP for 2023/24. One would assume the figure will be higher for 2028/29 but it’s not clear how high it can realistically go. But again the fair comparison is with the UK 2023/24 chart not the 2028/29 chart. ↩︎

    10. In principle there is an alternative; boost productivity and grow the economy. It was economic growth that enabled significant rises in public spending in the 2000s without significant tax rises. But even if this could be achieved, it’s not going to move the dial much in the next few years. ↩︎

    11. And from 2010-2015, Conservative/Lib Dem coalition ↩︎

  • Interactive marginal tax rate chart – June 2024

    Interactive marginal tax rate chart – June 2024

    This interactive chart lets you see the current rUK and Scottish marginal tax rates for 2023/24 and 2024/25, with/without child benefit and student loans. You can turn on/off different years and options by clicking on the legend below the chart. Some of these charts won’t work well on mobile; you can see static versions here.

    This interactive chart plots the same data, but gross income vs net income:

    Finally, this chart again plots gross vs net income, but adds in the effect of the marriage allowance and a £20k childcare subsidy:

    Methodology

    The calculations are performed by the python script and rate data on our github here. The key assumptions/caveats are:

      • Income tax/NI as for tax year 2023/24 and 2024/25 in the UK and Scotland (but applying the September 2023 national insurance change as if it applied for the whole of 23/24)
      • One earner in a household, who is over 21 and not an apprentice, not a veteran, and under the state pension age
      • Ignores benefits aside from child benefit (although benefits are notorious for creating very high marginal rates – not, however, an area where I and our team have expertise). Child benefit assumes three children (you can freely change that in the code).
      • Doesn’t include tapering of pensions annual allowance (starting at £240k)

    Do please send us any corrections, additions or comments.

  • The UK tax system favours capital gains. Is it an outlier?

    The UK tax system favours capital gains. Is it an outlier?

    The recent publication of Rishi Sunak and Keir Starmer’s tax returns brought into focus the large difference between the marginal rates of tax on employment income (47%) and capital gains tax (20% for shares; 28% for real estate). Many people propose closing this gap. But how unusual is it in an international context? What do we see if we look across the rest of the OECD?

    UPDATE 16 October 2024: see this updated analysis with a detailed policy proposal which aims to solve the issues identified below.

    The UK rate of income tax on dividends tops out at 39.35%, but the rate of capital gains tax on sales of shares is 20%. This is a large gap, and encourages significant avoidance – so I’ve suggested closing it. Some people responded by saying that other countries also had a large gap between CGT and income tax, and the UK would be an outlier if we closed it. My initial reaction was that this was wrong, but I don’t think it’s wise to ever propose tax policy changes without looking at what the rest of the world does. This short article therefore compares rates across the developed world.

    CGT vs income tax on dividends

    Here’s a chart showing, for each country in the OECD, the highest marginal rate of income tax on dividends and the highest marginal rate of capital gains tax on share sales. The arrowhead is the CGT rate. The tail of the arrow is the income tax rate. The chart is sorted by CGT rate.

    In other words, this shows us the size of the CGT/income tax gap:

    The position is rather nuanced:

    • The big Continental economies – France, Germany, Italy, Spain, have CGT rates more-or-less equal to income tax rates. In that sense the UK is an anomaly.
    • However whilst the UK has a slightly below average rate of CGT on shares, it has one of the highest rates of income tax on dividends. Higher than France, Portugal, Italy, Spain. Which is surprising.
    • Quite a few countries have no CGT at all (arrowheads on the 0% line), although one could probably make a fair case that none of those are particularly comparable to the UK. I’d expect those countries have a lot of avoidance, with people manufacturing gains rather than taking dividends from private companies.
    • Two countries have no income tax on dividends at all (arrow tails on the 0%) line – Latvia and Estonia. Curiously they charge CGT on shares, so I’d expect there is a lot of avoidance by taking dividends rather than selling shares in private companies.

    So is it true to say the UK has an unusually large gap between the rates of income tax and capital gains tax? Somewhat, depending on whether you think the comparison should be focussed on the big Continental economies or drawn more widely.

    This differential between the income tax rate on dividends and the CGT rate on shares is important when we’re thinking about the potential for avoidance, given how easy it is for owners of private companies to shift their return from dividends to capital gains. That was Nigel Lawson’s point back in 1988.

    But if we increased the UK CGT rate to match the dividend income tax rate of 39.35% it would be one of the highest in the world, with only Denmark and Australia higher (and the Australian rate is halved where an asset is owned for a year or more). That shouldn’t rule out such a change, but it should make us hesitate.

    And I suspect it would be politically highly controversial to follow France, Germany, Italy and Spain, equalise the rates of income tax and CGT on dividends/shares at around 30%. It would be seen by many as a tax cut for the rich, and that would probably be correct.

    CGT vs income tax and NI/SS on employment income

    As a tax lawyer, I start by looking at the problems of avoidance and economic distortion caused by a large income tax/GGT rate differential. However, often people are making a more political point: that it’s inequitable to tax capital gains so much less than employment income. That’s most often an argument associated with the political Left, but even a technocratic centrist like James Mirrlees argued that the combined rates of corporate and shareholder taxation should equal the tax rates on employment income.

    What if we take the chart above, but instead of comparing CGT with income tax on dividend income, we compare it with tax on employment income, i.e. income tax and national insurance/social security?

    This is a dramatically different picture, as almost all countries tax employment income significantly higher than investment income, and therefore almost all the OECD has a big differential between CGT and tax on employment income. Once we include national insurance/social security, the UK’s differential looks unexceptional (particularly compared to the likes of Belgium – 0% CGT vs 60% tax on employment income!).

    The UK would therefore be an outlier if we equalised CGT and income tax on dividends at the employment income marginal rate of 47%. We’d have the highest rate of CGT in the developed world, which doesn’t feel like a great idea. I find this an uncomfortable conclusion, given the avoidance and distortion that results from taxing different types of income at wildly different rates.

    I still believe we should increase the rate of UK capital gains tax, but I’d probably be cautious at going much above 30%, although if indexation (allowance for inflation) is reintroduced then perhaps we have more scope. But in a world full of crazy and inequitable tax systems, perhaps we have to be careful not to be too sane.

    The data and code that created the charts is here.

    Notes on the underlying data:

    • The tax rate on dividends is the highest marginal combined national/state rate taking account of imputation systems, tax credits and tax allowances. Source is the wonderful OECD tax database, column K.
    • The tax rate on labour income is the highest marginal rate of combined national/state, including employee social security/NI (but not employer rates). Again the OECD tax database is the source – see the “all in rate” column F.
    • The CGT rate is the highest marginal combined national/state rate on shares. Source: this helpful table from PwC and Tax Policy Associates research.
    • Note that these are rates for local residents. Some countries (e.g. France) in principle tax foreigners on local gains (although tax treaties mean in practice this rarely applies). Other countries like the UK/US only tax local residents on gains in stock/shares.

    Footnotes

    1. In principle both rates reflect the fact that a company’s profits are subject to tax at 25% – that means the effective rate of tax on dividends from a UK company can be as 54%, if the dividend is entirely paid out of taxable profits. However using the 54% figure would be misleading for two important reasons. First, dividends aren’t always paid out of taxable profits (in some circumstances you can borrow to pay a dividend). Second, UK resident individuals receive dividends from countries all over the world. The 54% is relevant only to where a UK resident individual receives a dividend from a UK company. This will in practice be a minority of cases. The same is true for most other countries, and therefore it would be misleading to present each country’s rate of tax on dividends adjusted to reflect that same country’s rate of corporate tax. ↩︎

    2. Both in terms of being informed by their experiences and because of the inevitable-if-controversial spectre of tax competition. It is absolutely possible to make the case that the UK should have a tax system that’s very different from the rest of the world but, if one does so, it’s important to understant that this is what you are doing, and consider the implications. ↩︎

    3. It therefore doesn’t include countries like Singapore and the tax havens, who are not OECD members. ↩︎

    4. Switzerland is interesting, because whilst it has no CGT it does have a wealth tax, raising about 1% of GDP – by comparison the UK raises about 0.5% of GDP from CGT, and most countries raise much less. Given the concentration of financial wealth in Switzerland it is likely that the Swiss system as a whole ends up significantly under-taxing wealth. ↩︎

    5. It’s sometimes proposed we increase the rate to 57%. That would be significantly higher than any other country. ↩︎

    6. i.e. because I expect the revenue gains from increasing the rate of CGT would be smaller than the revenue losses from reducing dividend tax. ↩︎

    7. See e.g. Tax by Design, page 474. ↩︎

    8. It’s even more dramatic if you bring employer national insurance into it. On the face of it that would make sense, given that in the long run most of the economic incidence of employer national insurance falls on employee wages. But in the short term it doesn’t, and therefore marginal rates (and the charts in this article) don’t include employer taxes. Suffice to say that for almost all countries including employer taxation would materially expand the delta between rates of tax on labour income and CGT ↩︎

    9. Anecdotally, this leads to a large amount of planning/avoidance by those on high incomes, so that the apparently high income tax rate in France, Belgium etc tends to be paid by the middle classes and not the very wealthy. However I am not aware of any data on the subject (and anecdotes from tax lawyers are inevitably unrepresentative and should be treated with caution). ↩︎

    10. People used to complain indexation was too complicated; in the days of online tax return that should no longer be an issue. The advantage of a higher rate plus indexation is that we are (effectively) reducing the rate for “real” longer term investors, but not for people who magically turn income into gains. The analysis really requires us to look at how inflation is catered for in other countries’ tax system; I believe most countries don’t have any indexation allowance, but I’m not aware of any centralised resource on the subject. So this would be a reasonably sized project, but one which is worth doing. ↩︎

  • Interactive map of all foreign entities holding English/Welsh real estate (v2)

    Interactive map of all foreign entities holding English/Welsh real estate (v2)

    Since the start of 2023, all overseas entities have had to be registered with the land registry and on Companies House – the “register of overseas entities“.

    We’ve created a interactive map that lets you see all property held by foreign entities. It’s very large (about 93MB), so people with slow or expensive connections may want to click away now.

    If you click on a property you can see its land registry details (which you can then look up here). You’ll also see the name of the foreign entity – clicking on that takes you to Companies House and (if there’s one clear match for the company name) straight to the registered beneficial owners of the company. Please see below for notes on using the map, and what it does and doesn’t reveal.

    Please don’t jump to assumptions about tax evasion/avoidance/illegality without reading the notes below.

    It’s important to note that there is nothing inherently suspicious about a foreign entity holding UK real estate. For example, if you zoom into Canary Wharf, you’ll see JPMorgan’s UK headquarters, which is held (unsurprisingly) by JPMorgan. If a foreign person is investing in UK real estate then it is only natural it holds through a foreign company, and UK tax rules will now tax it in broadly the same manner as a UK company – so there is no avoidance here.

    Some people have presented the raw numbers of overseas real estate holders as some kind of problem – that is in our view wrong and misleading.

    There are, however, some things that in our view are suspicious and potentially unlawful:

    • A missing beneficial owner entry may indicate a breach of the rules. It will sometimes be appropriate to certify there is no beneficial owner, for example where no one person has a 25% holding or control/influence.
    • The registered beneficial owners should be individuals, with exceptions for governments, listed companies (like JPMorgan), regulated providers of trust services, and companies which themselves list the beneficial owner. If you see any other kind of company listed (like this Barrowman-linked example) then that may be a breach of the rules.
    • You will sometimes see a company listing its beneficial owners as trust entity, with no other person listed – here’s another Barrowman-linked example. In our view this will sometimes be unlawful, particularly where the company is closely held. The trust entity will often have an individual (such as Barrowman) who exerts influence and/or de facto control over it; that individual should be listed as a beneficial owner on the basis they are a “person with significant influence“. However there appears to be widespread disregard of this rule.

    It is, on the other hand, perfectly lawful to hold UK real estate through a foreign company with the aim of saving stamp duty land tax. Selling UK real estate directly triggers stamp duty at up to 15% (for residential property) and 5% (non-residential), but selling a company holding UK real estate does not. We have proposed closing this “loophole” for non-residential properties, and looking again at how the rules apply to residential property. We put “loophole” in scare quotes because it’s a practice that HMRC and successive Governments have known about for decades, and which current legislation permits.

    Some notes:

    • We are certainly not the first to create a map like this, but we believe this has the most up-to-date data and is the easiest to use. It is also, most importantly, pretty.
    • The map locates properties by postcode, and therefore there will be inaccuracies in the presented location, particularly in rural areas. Where there is no valid postcode (110 properties) or no postcode at all (21,939), we’ve attempted to roughly locate the address by putting a black mark in the geometric centre of the district that they are in. Anything more accurate would probably require someone going through by hand, and/or cross-referencing via the land-registry. A simple manual land registry lookup will reveal the exact location (but will cost you £3).
    • The price shown will not always be the price for that particular property – simultaneous purchases of multiple properties will often (perfectly properly) be registered showing the total price for all the properties. There are also ways to hide the true purchase price from the land registry (some of which are lawful; others less so).
    • There are certainly problems with the way the register of overseas entities works; some are inherent in the design, but in our view lack of enforcement is the immediate problem.
    • One important “loophole” is that the register doesn’t show beneficial ownership of land, it shows beneficial ownership of the company holding land. One can therefore use a professional trustee to hide the true ownership. This should be registered with the HMRC trust registration service, but the information will not be publicly available. That seems to us to be a significant problem, but it is unfortunately fundamental to the rules. However where the trustee is significantly influenced by an individual (for example because it is part of a family office and not a professional trust company) then in our view the individual should also be registered as a beneficial owner.
    • The 25% rule means that where for example, land is ultimately owned by a private equity firm, often no beneficial owner will be shown. That will in most cases be correct, because there are usually (much!) more than four investors in the private equity fund, and more than four individuals running the fund management. There are, for example, many retail chains and hotels owned by private equity funds. This is usually not tax avoidance.
    • The register doesn’t include Scottish properties – the Scottish equivalent is only updated once a year, costs £300 to obtain, and comes with licensing restrictions. The 2023 update will be released in March, so there’s an opportunity for anyone interested to investigate this further.
    • The Scottish position is further complicated by the way Scottish land law works. There is a partial map of Scottish rural land ownership here, but we’re not aware of any equivalent for urban areas.
    • We haven’t looked into the position for Northern Ireland, but it’s not included in the Land Registry dataset we used.

    The bottom line remains: rules that are not enforced may as well not exist. Good actors will follow them, but the people the rules are actually aimed at will not.

    You are free to use the map for any purpose – if you find something interesting then we’d be grateful if you could credit us, but you don’t have to.

    Full credit to the code that generated this map to M, who coded it in an amazingly short amount of time. The html is his copyright, and posted on this website with his kind permission. Anyone wanting permission to use it should contact M via us.

    Footnotes

    1. Meaning companies and other bodies with legal personality, such as foundations, LLPs and some foreign partnerships. This includes where they are acting as trustees ↩︎

    2. This is the second version with three improvements. First, it attempts to link straight through to the Companies House registered beneficial owners (saving you at least two clicks of the mouse each time). Second, it attempts to locate properties with no postcode. Third, it adds a date for when the registered proprietor’s details were updated ↩︎

    3. Sometimes there won’t be a clear match – perhaps different spelling of “Limited”; perhaps there will also be a UK company with the same name as a foreign company – you will then need to select the correct company, then click on “people” and “beneficial owners” to see who the registered beneficial owner is. Sometimes there will be multiple foreign companies from different countries; you may then need to look at the register itself to see which one is relevant. ↩︎

    4. The position used to be different. Foreign companies holding UK real estate have always been subject to UK tax on their rental income, but gains used to be exempt. That changed in 2015 for residential real estate and in 2017 for non-residential real estate. There also used to be an inheritance tax benefit for non-domiciled individuals of holding UK real estate through a foreign company; that went in 2017. There is a brief summary of some of these issues here. It is therefore often the case that UK land is held offshore for historic tax avoidance reasons that no longer apply, but extracting the land from the current entity owning it is more cost/hassle than it’s worth. ↩︎

  • How does UK inheritance tax compare with other countries?

    How does UK inheritance tax compare with other countries?

    The OECD tax database has data on inheritance tax systems across the world, and we can use that to plot theoretical estate/inheritance tax effective rates in each country. In other words, for estates going from 1x average earnings to 100x average earnings, how much tax does the estate pay, as a % of estate value?

    In many countries, the tax result differs markedly depending on who inherits, so I’ll focus on children inheriting from two married parents (generally the scenario with the lowest tax).

    That gives us this:

    Obvious conclusions:

    • The point at which inheritance tax first applies is much later in the UK than in most other countries. An average UK estate of £335k isn’t taxed – equivalents in many other countries are.
    • By the time we get to estate values of 27 x average earnings (£1m in the UK), every country on the chart is charging tax, except the UK and the US (plus of course the countries that don’t have an inheritance tax at all).
    • On the other hand, the UK rate is higher than most, and so starts catching up fast. When we reach estates worth 80 x average incomes (£3m in the UK), the UK has one of the highest theoretical effective rates of inheritance tax in the world.

    That’s the theory. Here’s the reality, from HMRC’s latest inheritance tax commentary:.

    There is a very noteable drop-off in the effective rate for large estates (£9m+). Perhaps for this reason, the UK’s high rate of inheritance tax is not reflected in its tax revenues:

    Denmark, The Netherlands and Germany all collect about the same amount of tax as us, but with markedly lower rates.

    Why? The most important explanations are likely to be:

    • The complicated-but-generous £1m UK inheritance tax allowance for children inheriting the family home from a married couple.
    • The very generous exemptions for agricultural property and business property, which the latest figures show cost around £1.4bn. The original intention was to avoid forced-sales of small businesses and farms. However, the exemptions are widely used as pure tax planning/avoidance, with particular use of woodlands and AIM shares.
    • The even more generous complete exemption from IHT for foreign property of non-doms, which is supposed to lapse after 15 years, but thanks to standard planning can be made permanent. The cost of this is unknown, because we (and HMRC) know nothing about the foreign assets of non-doms.

    So a tax that’s very progressive in theory, turns out to be only progressive for the upper middle class – who are rich enough to get taxed, but not rich enough to avoid it.. The middle class pay nothing (unlike much of the Continent). The seriously wealthy pay (relatively speaking) considerably less than the upper middle class.

    Where does that leave us? A tax with an unfortunate combination of a high rate (which makes it unpopular and motivates avoidance) and poorly targeted/overly-generous exemptions (which enable avoidance).

    There are lots of proposals for reform, but a dramatic change to such a sensitive tax will always be politically difficult.

    My proposal is simple. Let’s be more Netherlands. Aim to collect the same amount of tax, and from the same people. Keep the £1m threshold, but simplify it. Make the exemptions less generous, and use the proceeds to greatly reduce the rate – perhaps even to as low as 20%. A fairer and more effective inheritance tax system.

    The underlying data is all thanks to the OECD; the code is available here.

    Footnotes

    1. Would be better to use wealth centiles in each country, but I can’t find consistent data across the OECD. If anyone can, please drop me a line). ↩︎

    2. Important caveats: this uses OECD data which covers the broad sweep of estate/inheritance taxes but inevitably misses some of the detail. I manually added in the UK residence nil-rate bands… I didn’t go through other countries and investigate/add in all of their quirks. So this may somewhat flatter the UK compared to other countries. The chart also only covers the scenarios where children inherit from a married couple. Other scenarios are hard to model given that many countries have forced heirship rules, where the children more-or-less always inherit. ↩︎

    3. The US is an interesting case. The rate is the same as the UK’s – 40% – but the per-person exemption has always been much higher. $5.5m in the 2010s and $12.9m today, rising with inflation each year until it resets back to $5.5m in 2025 (unless extended). Like the UK, there are many ways to avoid US estate tax – arguably it’s even easier (the use of trusts is extremely common). ↩︎

    4. Note that the HMRC chart s for individual estates, and my chart above for the overall impact on a married couple couple. You therefore can’t directly compare one against the other – i.e. because the spouse exemption means that 30-40% of all deaths result in no inheritance tax, so even if the 40% rate applied perfectly, the HMRC chart would show an effective rate in the 20%s ↩︎

    5. Primarily because a disproportionate amount of their wealth is in their house, which means taking advantage of the various reliefs/exemptions is impracticable ↩︎

  • Comparison of OECD inheritance taxes

    Comparison of OECD inheritance taxes

  • Why cutting 70%+ marginal rates should be a Government priority

    Why cutting 70%+ marginal rates should be a Government priority

    If I was a Tory Chancellor, I wouldn’t abolish inheritance tax. I’d fix the ridiculous marginal rates that mean there are hundreds of thousands of 30-somethings paying more than 70% tax on every additional £ they earn.

    This is complicated, unfair and a disincentive to work; it could also plausibly be holding back growth. Any government serious about fixing the tax system should start here.

    UPDATE 20 November 2023 to take account of the uprating of child benefit. And more here on the ghastly mechanics of the High Income Child Benefit Charge. Also please note that the figures in this article are for the UK excluding Scotland – the Scottish rates are higher.

    Here’s a speech from the last time a Conservative Chancellor cut taxes:

    But 45% isn’t the highest rate. Not even close. There are millions of people paying more than 60%. And hundreds of thousands paying much more – some even over 100%.

    The marginal rate

    If you want to know your take-home pay, then it’s your effective rate of tax that’s important – total tax you pay, divided by gross wage (more on that here). Earn £50k, you take home about £38k after tax, so your effective tax rate is 24%.

    The marginal rate of tax is different and more subtle – it’s the percentage of tax you’ll pay on the next £ you earn. Irrelevant to where you are now, but highly relevant to your future, because it affects your incentive to work more hours/earn more money..

    The marginal rate of tax in the UK for high earners in theory caps out at 47% (45% income tax and 2% national insurance) once you get to £125,140k. I’m not terribly convinced this disincentivises anyone to work (and I spent many years working in an environment surrounded by colleagues and clients paying tax at this rate). But people earning much less than £125k can have a considerably higher rate, principally due to four effects:

    • Child benefit is £1,248 per year for the first child and £827 for the rest. It starts to be phased out by a special tax – the “high income child benefit charge” – if your salary hits £50k, and you get no child benefit at all once the gross salary of the highest earner in the household hits 60k.
    • The personal allowance – the amount we earn before income tax kicks in – starts to be phased out if your salary hits £100k, and is gone completely by £125k.
    • Student loan repayments
    • Government childcare schemes

    These phased withdrawals create very high marginal rates.

    The 70%+ rates

    For a family with three kids, the marginal tax rate for a given salary looks like this:

    That bump between £50k and £60k is a 71% marginal tax rate, meaning that, for every additional £1,000 you earn gross, you take home £290.

    Looking at it another way: imagine you’re working a reasonably modest 1,500 hours a year and earning £50k gross, so about £38k take-home. That’s £33/hour before tax, £25/hour after tax.

    How would you like to work another 200 hours a year for the same hourly rate? Sounds good. But after-tax you’ll actually be earning £9.57/hour. You may well not think that’s worth your while. And, given that £9.57 is less than the minimum wage, if you need childcare cover then that could easily cost you more than the additional pay.

    The bump between £100k and £125k is the withdrawal of the personal allowance, and results in a 62% rate between £100k and £125k. Not quite as dramatic as the 71%, but still well over the psychologically important 50% mark – and that rate lasts for a significant £25k.

    An example of how this can play out: you work 1,500 hours a year and earn £99k, gross, about £63k take-home. That’s £66/hour before tax, £42/hour after tax. If you work another 400 hours to hit £125k gross, after-tax you’re earning £26/hour.

    Let’s go higher

    Because it’s linked to child benefits, those high marginal rates just get bigger the more children you have. I have a friend with six children. Congratulations, Steve, because you can win a marginal tax rate of 96%.

    Why stop there? With eight children you get a top marginal rate of 112% – so if you earn £50k gross, your after-tax pay is £38k. If you earn £60k gross, your after-tax pay is £37k. That’s insane. Hopefully, nobody is actually in that position, but a sensible tax system doesn’t create such results, even in theory.

    What about student loans?

    Student loans are really just a complicated hidden graduate tax.

    For someone starting university before 2012, you pay 9% of your salary over £20,184, until the loan is repaid. Of course, the effect on individuals – even those on the same income – will vary widely, depending on how much loan they borrowed, how long they’ve been earning, and how their salary ramped up over time.

    We can model it with some simplifying assumptions. Let’s say everyone on the chart is 30 years old, graduated nine years ago, and their salary ramped up in a straight line from £20k to where it is now. The marginal rates then look like this:

    I’d be cautious about citing these precise figures, given how dependent they are on the assumptions. But, unsurprising, the broad effect is just to raise all the marginal rates by 9%. Graduates with children can therefore easily suffer from marginal rates of 80%. You can have a play with the spreadsheet to look a the various scenarios.

    It gets worse

    The Government keeps creating generous childcare schemes that are removed suddenly when your wage hits £100,000. That creates a marginal rate that can only be described as “insane”.

    This year, the Government created a new childcare support scheme for parents with children under 3. This could be worth £10,000 per child for parents living in London. And it vanishes completely once one parent’s earnings hit £100k. Here’s what that does to the marginal tax rate:

    The 20,000% spike at £100,000 is absolutely not a joke – someone earning £99,999.99 with two children under three in London will lose an immediate £20k if they earn a penny more.

    The practical effect is clearer if we plot gross vs net income:

    After-tax income drops calamitously at £100k, and doesn’t recover to where it was until the gross salary hits £145k.

    This is ignoring the pre-existing tax-free childcare scheme, which also vanishes at £100k. The amounts are less (usually under c£7k/child) so the curve would look less dramatic. However, as the scheme applies to children under 11, taxpayers feel these effects for many more years.

    Why does nobody care?

    If a political party went into an election, promising a tax system like the one described in the article, there would be uproar. But instead, we’ve drifted into this disaster over many years, and the topic is absent from almost all political debate. The Conservative Party mostly doesn’t talk about these high marginal rates, perhaps because they’re too embarrassed to admit it’s mostly a system they created. Labour doesn’t talk about it, perhaps because they’re too embarrassed to appear to care about anyone earning £50k (and Brown/Darling were responsible for the personal allowance taper).

    And if your reaction to this is “I don’t care about people earning £50k or £100k a year”, then you should.

    • It’s more people than you’d think. After the recent surge of inflation, something like 23% of taxpayers earn £50,000 and 6% earn £100,000.
    • But that’s a snapshot, and also not quite the right measure. A better question is: what proportion of households will at some point have someone in a position to accept a promotion, or work more hours, and break the £50k or £100k barrier? I’m not aware of any figures on this, but I expect the answer is a large percentage, perhaps even a majority.
    • There’s an obvious impact on all of us if plumbers, doctors, IT contractors etc are turning away work/hours to avoid hitting £50k/£100k.
    • And a wider economic impact. When we have a workforce capacity crisis, we shouldn’t be creating an incentive for people to turn away work. I’m not an economist, but it seems plausible these effects act as a brake on growth.

    And we should also care about fairness, at all levels of income. A marginal rate of 80% is a problem we should fix, whether it hits people earning £10k or people earning £1m.

    The child benefit withdrawal is particularly complicated and unfair, and catches lots of people out.

    The human side looks like this, one of many similar messages sent to me:

    And:

    If we’re looking for ways to fix the tax system, then this should be right at the top of the target list. Regardless of where we sit on the political spectrum.

    The solution

    One solution is simply to scrap the personal allowance and child benefit tapers (and the marriage allowance to boot). That would, however, be fairly expensive, on the face of it, costing somewhere around £6bn to repeal both. Scrapping the childcare hard-stop at £100k, and the student loan repayment rules, would be more expensive still. That said, the widespread awareness of these issues amongst the people affected, and use of salary sacrifice, additional pension contributions, etc, makes me wonder if the actual (dynamic) cost might be materially less..

    Realistically the most likely source of funding is playing around with rate thresholds, for example reducing the point at which the additional rate kicks in. There are certainly other alternatives; but the important thing is that we really, really, shouldn’t have a tax system that can have a 71% marginal rate, let alone a 20,000% marginal rate.

    Oh, and the other lesson: please please, politicians and HM Treasury, don’t introduce any more tapers into the tax system. Thank you.

    The caveats

    All the calculations are in this spreadsheet. The key assumptions/caveats are:

    • Income tax/NI as for tax year 2023/24
    • One earner in a household, who is over 21 and not an apprentice, not a veteran, and under the state pension age
    • Ignores benefits aside from child benefit (although benefits are notorious for creating very high marginal rates – not, however, an area where I and our team have expertise)
    • Doesn’t include tapering of pensions annual allowance (starting at £240k)
    • Doesn’t include effects of the pension annual allowance.

    Do please send me any corrections, additions or comments.

    Footnotes

    1. Everything interesting happens at the margin. For more on why that is, and some international context, there’s a fascinating paper by the Tax Foundation here ↩︎

    2. Note that I’m not including employer’s national insurance here. Employer’s national insurance is absolutely a tax on labour in the long term, because it reduces pay packets in the long term. But it’s not usually included in a calculation of a marginal tax rate, because it’s not economically passed to you in the short term, and so it won’t rationally affect your decision whether or not to work more hours. There’s a good explanation of this point here. ↩︎

    3. The Scottish rates are higher – the charts and figures here are for the rest of the UK ↩︎

    4. i.e. because in some cases someone earning £50k will have already repaid their student loan ↩︎

    5. The chart is for a single earner, but if they have a partner, the partner would also need to be earning at least £8,668 (the national minimum wage for 16 hours a week) ↩︎

    6. The 20,000% figure is a consequence of the spreadsheet incrementing the gross salary by £100 in each step. Arguably the true marginal rate is £20,000 divided by 1p, or 200,000,000% – but the concept of marginal rates doesn’t really make much sense when we have discontinuities like this ↩︎

    7. I’d forgotten that detail – thanks to Robert Palache for reminding me ↩︎

    8. Taxpayer income percentiles are here, but only go to the 20/21 tax year; we then have to uprate these figures by the approx 18% inflation since. ↩︎

    9. See also this excellent OTS report here ↩︎

    10. Nikhil Woodruff has properly modelled this, and reckons £6.6bn. We can sense-check very approximately as follows: 500,000 taxpayers earn £120k, value of personal allowance is £5k, so approx cost £2.5bn. Child benefit taper envelope: the child benefit taper was expected to bring in £2.5bn of revenue when introduced in 2013. Since then, child benefit has gone up about 10%, and nominal earnings about 30%. Implying costs of around £2.5bn today. The marriage allowance should be small beer by comparison with either figure. ↩︎

    11. Some people respond to this by saying: it’s easy; they can just make a pension contribution to keep their income below £50k/£100k. For the self-employed, or anyone with irregular earnings, that’s not so easy to manage in practice. And people (reasonably) often want to spend their earnings as they like, and not make a huge pension contribution ↩︎

  • How much does the UK tax the average worker, compared to the rest of the world?

    How much does the UK tax the average worker, compared to the rest of the world?

    I posted some charts yesterday on how the UK tax system compares to other countries when we look at tax as a % of GDP. One response was to say: “well, I don’t care about tax as a % of GDP… I care about the tax I pay”. Which is fair enough.

    How can we fairly compare the tax actual people pay?

    Tax wedge

    The “tax wedge” is the tax paid by the average single worker divided by the gross wages. It’s the best way I know to make a fair (or somewhat fair) comparison of the burden on tax on wages across the world.

    Looking at the OECD tax wedge data, we see this:

    I think many people will be surprised, even disbelieving, at where the UK places here.

    Clearly there are some very different social models, with Belgium (for example) having a much more expansive welfare state than Chile. So it’s useful to add in that wider context (again from OECD data):

    So in general terms, if you’re an average worker, you get what you pay for.

    Or, if we want to annoy lots of people, we can point out that there’s no country where the average worker pays less tax than the UK on their wages, but which has higher government spending.

    What about VAT?

    If we just look at the standard rate of VAT in each country:

    On the face of it the UK again looks very average.

    But we can’t just compare the standard rate. Some countries apply the standard rate to almost everything; others have widespread exemptions and special rates.

    We can get a sense of this if we plot the rate of VAT against the amount of tax VAT collects, as a % of GDP:

    The chart suggests the UK collects a bit less VAT (as a % of GDP) than you might expect from its rate.

    The bottom line is that there is no evidence that the average Brit is over-taxed by international standards.

    The spreadsheets with the data and charts are available here.

    Footnotes

    1. In other words, this takes into account the income tax and national insurance/social security paid by the worker him or herself, and also the national insurance/social security paid by the employer (because there is good evidence that in the long run this is economically paid by the employee in the form of reduced wages). ↩︎

    2. There’s no USA on the chart, because the US has no VAT. Many states have sales taxes, but they’re nothing like VAT – the rate is much less (averaging around 5%) and the goods/services covered are much more limited. ↩︎

    3. Bear in mind the usual caveats about comparing different systems in different countries, and (as usual) ignore Ireland, because its reported GDP is distorted by multinational [HQ locations]/[tax avoidance] (delete per your preference). ↩︎

    4. Actually it’s worse than that, because VAT compliance in the UK is pretty good, and so masks what is a very limited VAT base (i.e. wide exemptions/lower rates) by international standards. Rita de la Feria, perhaps the world’s leading VAT academic, has written convincingly on this. ↩︎

  • Is the UK over-taxed or under-taxed?

    Is the UK over-taxed or under-taxed?

    We now have the latest OECD tax data, showing tax as a percentage of GDP across the developed world.

    The UK looks rather average:

    If we order by personal tax (income tax and national insurance etc), we see that UK income tax/NI is a somewhat lower % of GDP than average:

    If we order by property/wealth tax, the UK surprisingly raises one of the highest %s of GDP in the world (although we should be careful about comparisons here; please see caveats below):

    Corporate tax, the UK raises a bit less than average (although this is before the increase from 19% to 25%, which will put the UK in the top quartile):

    Another way to look at the data is each tax as a % of overall tax revenues. Then the UK looks rather unexceptional, raising proportionately a bit less in personal tax than most of the world, but a bit more in property tax.

    So many of the loudest voices in the tax debate are wrong. The UK is not horribly over-taxed. Wealth in the UK is not horribly under-taxed. We have a pretty typical tax system. We could tax a bit more, or tax a bit less, and there are certainly plenty of aspects of the system we could and should improve. But the case for revolutionary change often relies upon an inaccurate picture of how things are now.

    The data is from the wonderful OECD global revenue statistics database – all I’ve done is take the many different taxes and push them into categories. The spreadsheet is available here.

    How’s it changed over time?

    Like this:

    Or, for the non-OECD countries:

    The code that generated these is available here.

    Caveats

    There are, inevitably, plenty of caveats:

    • These figures include all national, state, local taxes.
    • This is OECD data, and so (whilst I’m not certain) I don’t believe it will pick up the significant recent UK corrections. There may be similar data issues with other countries.
    • It’s OECD only, so no Singapore (not an OECD member because it’s not a democracy).
    • “Property/wealth” is a combination of capital gains tax, inheritance tax, stamp duty/land transfer taxes, council tax, and other recurrent and transaction taxes on property. This won’t quite be an apples-to-apples comparison, because property taxes in some countries pay for services which in other countries you pay for privately (e.g. garbage collection).
    • “NI/SS/payroll” includes employee and employer taxes (because the economic burden ultimately falls on employees). Also includes such things as the UK apprenticeship levy. Comparisons need to be done with care because some countries have greater private pension provision, and others achieve an economically similar result with income-linked state pensions.
    • Oil/gas taxation is included in “corporate tax”. You could argue it shouldn’t be; the inclusion is less a point of principle, and more because disentangling it from this dataset is hard.
    • Small countries like The Netherlands, Luxembourg and Ireland (some would say “tax havens”) somewhat distort the data. Their corporate tax looks high; their GDP (particularly in the case of Ireland) is artificially inflated, so the overall level of tax looks low.
    • Mexico, Colombia and Chile suffer from a large informal economy and so their personal tax revenues are relatively low, and they are disproportionately dependent on corporate tax and indirect taxes.
    • Plenty of other factors complicating simple comparisons between countries, e.g. US private healthcare provision being economically akin to taxation but not showing in this dataset.
    • A few countries haven’t provided recent data yet – Australia, I’m looking at you – and so are missing from the first charts. The animated chart replaces missing data with the previous year (to avoid it looking like the country has disappeared).
    • GDP data is frequently subject to revisions, both corrections and changes in methodology. The OECD has kindly confirmed that the data we use here reflects all these revisions, and so it is appropriate to e.g. compare the 2021 GDP figures with the 1990 GDP figures.

  • Income and income tax by constituency

    Income and income tax by constituency

    Here’s an interactive map showing incomes in each parliamentary constituency in 2020/21, shaded by median incomes. You should be able to zoom around with your mouse/fingers, and if you hover/touch a constituency you’ll see the full data, broken down by employment income, self-employment income and total income tax paid:

    You can see a full-screen version here, and the source code is here.

    If we shade by mean income, instead of median, the map turns entirely white (and you have to zoom into central London to see any colour). Which tells us something about income inequality:

    Full-screen version here

    There are some big caveats here. It’s data from income tax only, so won’t include capital gains. The sample size per constituency is small, so the accuracy won’t be great. Both these reasons mean that very high earnings likely won’t be captured.

    The income tax data comes from here.

  • Why does inheritance tax matter politically?

    Why does inheritance tax matter politically?

    Here’s an interactive map showing inheritance tax paid in each parliamentary constituency in 2019/20, and shaded by the number of estates paying inheritance tax. You should be able to zoom around with your mouse/fingers, and if you hover/touch a constituency you’ll see the data:

    You can see a full-screen version here, one with alternate shading by the amount of IHT paid here, and the source code is here. Note that, for data privacy reasons, we see no data for any constituency where the number of estates is less than 30.

    Another less pretty way to view this:

    It’s easy to forget quite how few estates pay inheritance tax these days, given that most households will need £1m of net assets before they start paying the tax, and old age naturally depletes the assets we were saving in our life. Looking around to see how many households have £1m+ now is a poor guide to how many will end up paying inheritance tax (particularly given that many people will give assets to their children before they die).

    So even in Richmond Park, only 159 estates paid inheritance tax.

    And of course many of those that do pay inheritance tax will have a small bill. For example, if your estate has £1.5m of net assets, the inheritance tax is only on amount over the threshold/allowance – so an IHT bill of roughly £200,000.

    (Note that the reason is absolutely not “the very rich don’t pay inheritance tax”. They do: they just pay a significantly lower effective rate than the merely comfortable off.)

    So is there some political pattern in inheritance tax that makes it a big political draw? What if we look at the seats the Conservative Party has to hold to stay in power, say the 100 seats with the smallest Conservative majority? Many of those have less than 30 estates paying IHT, but of those with 30 or more:

    No particular pattern, other than almost all of them have less than 100 estates paying inheritance tax (the Excel file is available here).

    So, why does inheritance tax matter politically?

    I’m not sure we know, but it won’t stop me guessing: it’s because of a widespread perception that the rich don’t pay the tax, but the merely comfortably off can be landed with large bills. (I think that’s consistent with this fascinating research from Demos).

    That perception is basically true. Check out this chart, from HMRC, looking at the 2016/17 figures on what estates are actually paying in inheritance tax. There’s a spectacular drop-off in the effective rate for large estates (£9m+):

    And look at what an outlier the UK is in international terms, with a relatively high rate but relatively low revenues:

    There’s an obvious answer: we should fix inheritance tax so the green curve above is more flat, and the seriously wealthy pay the same effective rate as the merely reasonably wealthy. We should be able to do that by capping reliefs that are meant for small farms and small businesses, but end up providing a massive tax reduction for multi-millionaires. Then we can lower the rate to something more like 20% or 25%, without reducing revenues, and put the UK closer to The Netherlands, Denmark and Germany.

    I think that would be the right thing to do, and treat both the seriously wealthy and the reasonably wealthy more fairly. I’ll leave others to judge how politically popular it would be.

  • Global wealth taxes at June 2023​

    Global wealth taxes at June 2023​

  • CRS implementation as at June 2023​

    CRS implementation as at June 2023​

  • Pillar Two implementation as at June 2023​

    Pillar Two implementation as at June 2023​

  • OECD corporate tax trends since 1965

    OECD corporate tax trends since 1965