Wednesday, 2 January 2013

That French 75% income tax rate

The way in which people respond, while probably exaggerated by the likes of The Daily Mail, is as expected:

French millionaire composer Jean-Michel Jarre is set to flee to London to escape France's looming socialist tax hikes on the rich. The icon of electronic pop music may join a flood of well-heeled French moving to 'wealth-friendly' countries like Britain, Switzerland and Belgium...

The flight of France's rich also comes as Paris estate agents warned that France's luxury property market had hit a 'selling panic' as the super-rich rushed to move away... The latest London estate agency figures have also shown large numbers of France's most well-heeled families selling up and moving to more 'wealth-friendly' nations like Britain and Switzerland.*

Taxes are ultimately borne by the least elastic factor, which is land, so if Jarre were a tenant, he can move here at no cost to himself; if he owned a mansion in France, he'll take a hit on it, which will wipe out the first few years' worth of income tax savings - but he's going to take that hit anyway whether he emigrates or not.

Conversely, the rental value of the sort of houses which rich foreigners like to buy, i.e. posh bits of London, will increase by the amount of tax which said rich foreigners can save by moving here.**

Let us imagine that we had a halfway house tax system, with equal amounts raised in LVT/Business Rates (approx. 3% of current selling prices, instead of Council Tax, SDLT, IHT and so on) and a flat 20% income/corporation tax (no higher rate tax, VAT or NIC on top of that), then we'd get even more rich foreigners and be able to collect even more in tax.

For example: A French person has income of £2 million, he can save £850,000 a year in income tax by moving to the UK (let's assume the first £1 million is taxed at 50% and the next £1 million at 75%); even if he buys a house costing (currently) £5 million, that only uses up £150,000 of the tax saving, and the chances are, the house would 'only' cost him £1 million or £2 million (so the LVT is no deterrent). So the UK ends up £450,000 ahead of the game, France loses £850,000 and Jarre gets to keep £400,000. What's not to like?

Ask yourself: is it really to our overall benefit if we rig the tax system for the sole benefit of all those Poor Widows living in exactly the sort of mansions which the likes of Jarre would like to buy, thus seeing them go to Belgium or Switzerland instead?

* Please note that Switzerland allows non-domiciled tax exiles to pay a lump sum income tax, which works out at about twice what the rental value of the home in which they live, with no need to declare or pay tax on foreign-source income.

** There are thousands of wealthy non-domiciles in the UK happy to pay a flat fee of £30,000 per person per year (soon to increase to £50,000) simply for the privilege of not having to declare or pay income tax on their overseas income. If we had LVT we wouldn't need this fee.


. said...

Yes. The media gives the impression that a lot of these wealthy newcomers also contrive to earn very little in the UK so in a way they appear to be getting a bit of a free ride under the current system.

Then there's also the issue with there being a shortage of living space in London.

I think land taxation of some description is needed to allocate London's living space a bit better.


Mark Wadsworth said...

BE, the bitter irony is that it is not really them getting a 'free ride', it is the people who sell or rent them the homes they live in.

Lola said...

The madness of the current 'participatory fascist/communist settlement' (not my original phrase) just gets madder every day. It is just not possible to go on getting better off by selling property/renting property to each other at higher prices all the time. It is self evidently wealth destructive. Or can only be sustained by a merry go round credit system that to me seems a lot like counterfeiting.

Something has to give.

Ben Jamin' said...

Perhaps this is all just a cunning ruse by our brilliant chancellor?

Get all these rich foreigners to "invest" tens of billions in UK property, then wham! a 100% LVT.


Bayard said...

Lola, any bubble looks mad when you think of the economics of it, but that doesn't stop them occurring.

Mark Wadsworth said...

L, yes, but it'll probably be the wrong people doing the giving.

BJ, you'd like to think he's doing our work for us.

B, agreed.