The Dutch tax system: a model for Scotland to follow?

There's a lot wrong with the tax regime in the Netherlands, says Merryn Somerset Webb. But it does give Scotland something to think about.

I'm thinking about tax systems. Scotland has a wonderful opportunity to offer real change over the next year or so. It won't, of course. But if it did want to reform the tax system, for example, where might it look? I've been wondering about the Netherlands.

Its income taxes are tryingly high the effective top rate is 52%, just as it was in the tax-crazed UK until this year. However, there are more deductions than we get notably, interest on some forms of debt, a privilege we reserve for buy-to-let landlords (see this week's magazine). And beyond income tax there is some interesting-looking stuff going on.

There is a smallish annual wealth tax (under which houses and savings are assumed to have a 4% yield, and that yield is taxed at 30%). But in exchange for paying that, the Dutch are spared capital gains tax (CGT), and pay a low rate of inheritance tax when they pass wealth to direct family members there is a very high nil-rate band, and the most you can pay if you pass money to children is 23%.

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The idea is that the accumulation of wealth is encouraged (no CGT is surely a very good thing), and it can be passed on without too much more tax being paid.

This is far from a perfect system. Added together, all the taxes are far too high, it is still too complicated (the income tax forms look horrible), and it is, of course, ludicrous that we can have got to a point in which I say that 23% is not "too much more".

I also have a horrible feeling that the lack of CGT next to the high levels of income tax might be a contributing factor in the Netherlands having one of the highest levels of personal debt relative to incomes in the world.

Still, our own non-indexed capital gains tax effectively operates as a very high wealth tax and scares people away from liquidating assets with gains. And anyone building a new tax system from scratch might like to note that it isn't compulsory to tax absolutely everything all the time.

Merryn Somerset Webb

Merryn Somerset Webb started her career in Tokyo at public broadcaster NHK before becoming a Japanese equity broker at what was then Warburgs. She went on to work at SBC and UBS without moving from her desk in Kamiyacho (it was the age of mergers).

After five years in Japan she returned to work in the UK at Paribas. This soon became BNP Paribas. Again, no desk move was required. On leaving the City, Merryn helped The Week magazine with its City pages before becoming the launch editor of MoneyWeek in 2000 and taking on columns first in the Sunday Times and then in 2009 in the Financial Times

Twenty years on, MoneyWeek is the best-selling financial magazine in the UK. Merryn was its Editor in Chief until 2022. She is now a senior columnist at Bloomberg and host of the Merryn Talks Money podcast -  but still writes for Moneyweek monthly. 

Merryn is also is a non executive director of two investment trusts – BlackRock Throgmorton, and the Murray Income Investment Trust.