Financial Trivia

26 Oct 2018

The concept of money and finance is one that stretches back thousands of years. Commodity markets in their earliest form are believed to have originated somewhere between 4,500BC and 4,000BC! Below are some interesting facts and insights into the financial world that you might not already know.  


How has the Napoleonic Law had a lasting influence on Europe? The French civil code was enacted in 1804 and still has a stronghold in many European legal systems to this day. During the Napoleonic Wars, in the 19th century, the code was voluntarily adopted in a number of European and Latin American countries, either in the form of simple translation or with considerable modifications. These countries included Italy, the Netherlands, Belgium, Spain, Portugal (and their former colonies), and Poland.


The Napoleonic Law was written in three volumes: The first book of the Code deals with the law of persons: the enjoyment of civil rights, the protection of personality, guardianship, relations of parents and children, marriage, personal relations of spouses, and the dissolution of marriage be annulment or divorce. The code subordinated women to their fathers and husbands; who controlled all family property, determined the fate of children and were favoured in divorce proceedings. The second book dealt with the law of things: the regulation of property rights – ownership, usufruct and servitudes. The third book deals with the methods of acquiring rights: by succession, donation, marriage settlement and obligations. In the last chapters, the code regulates a number of nominate contracts, legal and conventional mortgages, limitations of actions and prescriptions of rights.


To this day, the Napoleonic Law is still entrenched in the form of the succession rules, designed to keep property within the bloodline. If you are a resident or have property in Portugal, Italy, France or Spain for example, once you die ´forced heirship´rules may automatically allocate a minimum proportion of your worldwide estate to specific heirs- even if your will states otherwise. It is also important to note that these countries are all rather traditional on the view of family, so stepchildren and unmarried partners may not be considered direct family - for succession law purpose.


So more than two centuries on after its promulgation, the Napoleonic Law is still living. Thus the melancholic words uttered by Napoleon in exile: “My real glory is not the forty battles I won, for Waterloo’s defeat will destroy the memory of as many victories.…What nothing will destroy, what will live forever, is my Civil Code.” were in fact partly justified.


Just what is common-law, how does it differ from the civil-law system used in some other countries and why is it important in finance? Common-law is a peculiarly English development. Before the Norman Conquest, different rules and customs applied in different regions of the country. After 1066, monarchs began to unite both the country and its laws using the king’s court. Justices created a common law by drawing on customs across the country and rulings by monarchs. These rules developed organically and were rarely written down. By contrast, European rulers drew on Roman law, and in particular a compilation of rules issued by the emperor Justinian in the 6th century that was rediscovered in 11th-century Italy. With the Enlightenment of the 18th century, rulers in various continental countries sought to produce comprehensive legal codes.


Today the difference between common and civil law traditions lie in the main source of law. Although common-law systems make extensive use of statutes, judicial cases are regarded as the most important source of law, which give judges an active role in developing rules. In civil-law systems, by contrast, codes and statutes are designed to cover all eventualities and judges have a more limited role of applying the law to the case in hand. Past judgments are no more than loose guides.

Civil-law systems are far more widespread than common-law systems: the CIA World Factbook puts the numbers at 150 and 80 countries respectively. Common-law systems are found only in countries that are former English colonies or have been influenced by the Anglo-Saxon tradition, such as Australia, India, Canada, and the United States. Whereas civil-law systems are found in countries such as China, Japan, Germany, France and Spain.

The relationship between Law and finance: from 1998 there has been considerable growth in this sector after Robert Vishny published ‘Law and Finance’. He suggested that legal systems and financial development go hand in hand with economic growth. Civil-law is viewed as inferior to common-law because it is devised by academics and legal philosophers, whereas common-law emerges from the process of judges resolving specific and real business disputes in a pragmatic manner. The infrequent revisions of civil-law codes mean that they can quickly become out of date, whereas the common-law can easily respond to new business environments and practices.


Why does the UK have a different tax year? Much of the world quite sensibly chose January 1st to be the start of the tax year, but amongst the major nations only the UK has a quirky start date to its personal tax year.


Back in the 1500s, most of Europe changed from the Julian calendar to the Gregorian calendar (which includes a leap year every 4 years). The UK however, had previously had a disagreement with the head of the Catholic Church on matters such as divorce…. so ignored the Pope's decree and continued on with the Julian calendar (as did Russia incidentally and for much longer than the UK). Thus for the next 170 years there existed a difference of at least 10 days between the calendar in Britain and that used by the rest of Europe. Using the new rules (Gregorian calendar), 1600´s added another day’s difference, whereas the 1700s did not and by 1752 Britain was therefore 11 days out of sync with the rest of Europe.


In Britain the four main Christian religious holidays (including Christmas Day) had been used as a “quarter day” on which all accounts and debts had to be settled, as well as rent for land and property being paid. The first of these “quarter days” fell on Lady Day, being the 25th March and also coincided with New Year’s Day and the first day of the British tax year.


It wasn´t until 1752 when the British realised that they needed to realign their calendar year with the rest of Europe, New Year's Day was moved to the 1st of January and 11 days were dropped from the calendar in order to catch up with the rest of Europe. Therefore September 1752 was a rather unusual month with September 3rd being swiftly followed by September 14th. Understandably the British public weren´t best pleased of being robbed 11 days, so in retaliation they took the streets in protest. The main focus of their fury was that their taxes were not also being adjusted similarly, so were expected to pay a full year of tax despite only having 354 days of the year.


In typical style the British treasury was concerned to ensure there would be no loss in tax revenues.  They made the decision that the tax year should remain 365 days and thus the beginning of the following year was moved from March 25th to April 5th and everyone was happy - to an extent. The treasury then decreed in 1800 that there would be lost day revenue, given that the century end would have been a leap year in the Julian calendar, whereas it was not under the new Gregorian calendar. Thus 1800 was a leap year for tax purposes but not for the purpose of the calendar and so the tax year start was moved again by a single day to April 6th.


This practise was dropped in the 1900s and now it would seem the UK is stuck with the April 6th start date for their tax year. On a side note, if the treasury had continued adding up Julian leap years for tax purposes where there was not a Georgian leap year, we would have caught up with the rest of the world by January 1st 37901!  


Did you know about married couple’s tax allowance? Rules were introduced which raise the prospect of a transferable tax allowance for some married couples. References to marriage also include civil partnerships. An individual is entitled to a tax reduction for a tax year at the basic rate of tax on the transferable amount if a claim is made.


That’s the message from the former pensions minister Steve Webb, who says: “Given the pressure on household finances at the moment, it’s vital that people claim the money that is theirs to be had.”


The marriage allowance tax break took effect in April 2015, and the government said at the time that more than four million married couples and 15,000 civil partnerships stood to benefit.

The marriage allowance is specifically designed for couples where one partner pays standard rate income tax and the other is a non-taxpayer. You can claim it provided the following apply: you are married or in a civil partnership; one partner in the couple doesn’t earn anything at all or their income is £11,500 or less in 2017-18; and the other partner’s income is between £11,501 and £45,000 in 2017-18 – or £43,000 if you are in Scotland.


If you are eligible, the lower earner can transfer any unused tax-free allowance of up to 10% of the value of the full personal allowance (i.e. £1,150 in 2017-18, because the personal allowance is currently £11,500) to their higher-earning partner. What’s more, you can backdate your claim to include any tax year since 5 April 2015 during which you were eligible for the allowance.


The HMRC confirmed just how poor the take-up of the allowance has been. The government estimated that 4.2 million couples stood to gain. But the response from HMRC dated 5 September confirms that only 2.2 million claimed the tax break, including claims made in 2017-18.


That suggests about two million more couples could still benefit. Assuming that each of these took advantage of the ability to backdate to 2015-16, that would produce a total tax saving to consumers of just over £1.3bn. Webb says: “Even in its third year of operation, around two million couples who could benefit from the marriage allowance are not doing so.” With Brexit uncertainty around the corner it would be a good idea for married couples to check if they are eligible. You could qualify for a lump sum as well as a reduction in your on/going tax bill.


If you are interested in finding out more, contact deVere Portugal’s financial advisers who specialise in cross-border cases. They can help you explore your options and help you establish the most suitable approach for your personal situation and objectives.