The UK’s rich culture, job opportunities, and amazing people have made it a popular choice for American expats. As an American expatriate, it’s essential to understand how moving to the UK will affect your tax situation.
Where do you pay more taxes in the UK or the US? The taxes in the UK are slightly higher than in the US. However, the social services you can take advantage of in the US are far more limited than in the UK. Additionally, you’ll have to pay for healthcare in the US which isn’t the case in the UK.
This guide compares various types of taxes and their amount between the UK and the US. It looks into their rates and due dates, ensuring that you are well-informed on this topic before your move.
Tax rates in the UK vs the US: full comparison
All taxes are managed by Her Majesty’s Revenue and Customs(HMRC) in the UK. The country upholds a progressive tax system where the more you earn, the higher amount of taxes you pay.
In the US, taxation is at the state and federal levels; therefore, different states have special tax rates. Taxes here are not based on where you live but rather on your citizenship status.
Types of taxable and non-taxable income
Not all income is taxable in the US and UK, and the rules on what income is taxable and non-taxable are different.
Some of the taxable income in the UK include:
- Salaries, including tips, bonuses, and holiday pay
- Pensions or retirement annuity policies (Up to 25% of the value of the policy)
- Profits from self-employment before expenses if they are more than £1,000
- Perks within your job, such as medical insurance
- Redundancy payments over £30,000
Non-taxable income in the UK includes:
- Compensation for loss of employment
- Adoption allowances
- Life Assurance policies
- Educational scholarships or grants
- Maintenance payments following separation or divorce
- Foreign social security benefits
- Disability and wounds pensions
- Betting winnings from football pools and lottery
- Disability pensions of members of the armed forces
To know all forms of taxable and non-taxable incomes in the UK, check out this website.
The following items are deemed non-taxable by the IRS:
- Child support payments
- Money reimbursed from qualifying adoptions
- Cash rebates on items you purchase from a dealer, retailer, or manufacturer gifts, bequests, and inheritances
- Healthcare benefits
- Alimony payments for divorce
- Welfare payments
- Unemployment compensation
The following incomes are non-taxable in the US:
- Disability retirement payments from an employer-paid plan
- Money and income from offshore accounts
- Municipal bond interest
- Up to $3,000 of income offset by capital losses
- Injury and sickness payments from an employer-paid plan
- The remaining amount of loan or debt that’s forgiven or canceled
- Income from a bartered service or property
- The fair market value of property received for your services
To know all taxable and non-taxable incomes in the US, check out this website.
Income taxes in the UK vs the US
In the UK, the higher your income, the more taxes you pay. The tax is charged on your total income after subtracting all allowances and deductions.
As of 2023, if you earn less than £12,570, it’s considered a personal allowance and isn’t subject to taxation. The net amount after your allowance is the one regarded as taxable income.
Here is a table showing the income tax bands and rates in the UK:
|Tax rate band||Income 2023(£)|
|Starting rate for savings: 0%||0 to 5,000|
|Basic rate: 20%||0 to 37,700 (including tax-free allowance)|
|Higher rate: 40%||37,701 to 150,000|
|Additional rate: 45%||Over 150,000|
Read about how taxes in the UK compare to Germany.
The income tax in the US is collected and managed by the Internal Revenue Service (IRS). Tax ranges vary based on your state, but they range between 10% and 37%.
Below is an image showing the tax income rates of each state in the US as of January 1, 2022:
The US has a progressive tax system, meaning individuals with higher taxable incomes have higher tax rates. The US doesn’t have tax-free income amounts; hence regardless of your income, you’ll pay taxes.
As of April 2022, there are seven federal income tax brackets in the US: 10%, 12%, 22%, 24%, 32%, 35% and 37%. The bracket changes depending on your filing status and taxable income.
The lowest rate (10%) applies to anyone earning between $0 and $9,875, and the highest (37%) applies to anyone earning over $523,000.
If married, you can file your income taxes together with your spouse. In this case, the amount for income brackets will double, but the percentage doesn’t change.
In addition to income tax in the US, some states require you to pay state taxes. For example, in New York, you need to pay 8.8% state tax.
Below is a table showing rates that apply to your income as a single taxpayer in the US:
|Tax band||Taxable income range($)||Amount of tax ($)|
|10%||0 – 9,875||10% of the income(Taxable)|
|12%||9,876 – $40,125||987.50 + 12% of the amount above 9,875|
|22%||40,126 – $85,525||4,617.50 + 22% of the amount above 40,125|
|24%||$85,526 – $163,300||14,605.50 + 24% of the amount above 85,525|
|32%||$163,301 – $207,350||33,271.50 + 32% of the amount above 163,300|
|35%||$207,351 – $518,400||47,367.50 + 35% of the amount above 207,350|
|37%||$518,401 or more||156,235 + 37% of the amount above 518,400|
Social contributions are called National insurance contributions (NICs) in the UK. All employers, employees, and self-employed people participate, and it covers pension plans, unemployment insurance, health insurance, worker’s compensation, and the cost of welfare.
Employees contribute 13,25% of the gross wage to social security. Employers pay NIC at 13,8% of their employee’s salary, and the rate also applies to employee benefits, such as company cars.
If self-employed, you must pay contributions at 10,25% on any earnings between £9,880 and £50,270 yearly. An additional rate of 3,25% applies to the income above that level. Besides, you pay a flat rate of £3.05 per week.
|Your annual salary||Class 1 National Insurance rate|
|£9,568 – £50,270||13,25%|
There is an agreement between the US and the UK concerning social security, which allows people to pay tax for social contributions in the country in which they are working. If self-employed, you pay in the country of your residence.
If you are an American and your employer sends you to the UK for five years or less, you’ll be exempted from coverage in the UK. Instead, you’ll continue to be covered by social security on US expat taxes.
There are two social contributions taxes made in the US; medicare and social security.
Medicare insurance taxes are paid by both the employee and employer at 1.45% of all wages. Anyone earning above $200,000 pays an additional medicare tax of 0.9%.
If you are self-employed, you must pay 2.9% of all your net income to Medicare.
For social security, the tax rate is 6.20% for both employees and employers or 12.4% on the first $147,000 of wages paid.
There are two kinds of property tax in the UK – Council Tax and Stamp Duty Land Tax (SDLT). SDLT is a tax that applies to non-residential properties over £150,000 and residential properties over £125,000.
Council Tax is the property tax charged by municipalities, depending on the value of properties within its jurisdiction. The highest council tax on an individual property in the UK is £1,750, and failure to pay it can lead to the state putting your home up for tax sale.
Property tax in the US is handled at the state level; therefore, the amount you pay for property taxes in the US depends on the state of residence. In some states, the rates are very high; in others, it’s minimal or non-existent. For instance, in New Jersey, they are pretty high at over $15,000 per year for a normal-sized house.
VAT or Sales tax
Most items are subject to 20% VAT in the UK. However, some goods are exempted from VAT, such as property and financial transactions and postage stamps.
Below is a table showing VAT rates for services and goods in the UK:
|Rate||Percentage of VAT||Rates that apply|
|Standard||20%||Most services and goods|
|Reduced||5%||Various services and goods like home energy and children’s car seats|
|Zero||0%||These include most children’s clothes and food items|
There is no VAT in the US; instead, different states have unique sales taxes ranging from 2,9% to 7.25%.
Some states charge an extra amount on top of this, but it’s not more than 1% to 5%. Numerous states have zero or reduced rates on certain goods, such as manufacturing-related machinery, residential utilities, and food.
Taxes for businesses, self-employed, and freelancers
VAT or Sales tax
If you are self-employed or a freelancer in the UK, you must pay VAT when your taxable income reaches £85,000 and above.
You can submit your VAT returns to HMRC online by creating a VAT account, also referred to as a Government Gateway account. Items such as goods exported to non-EU countries, children’s clothes, and books don’t have VAT requirements.
In the US as a freelancer, business, or self-employed individual, you must pay sales tax on the sale of your final service or product. As a seller, you need to collect the sales tax when making a sale. It varies from one jurisdiction to another but ranges from 0% to 16%.
Capital gain tax
Any property sale in the UK that leads to a profit attracts an 18% capital gains tax (CGT) for basic-rate taxpayers and 28% for those who pay a higher tax rate.
In the US, capital gain tax varies depending on your income (the higher the income, the higher the rates).
Below is a table showing a single person’s capital tax rates for 2021-22:
|0%||$0 to $40,400|
|15%||$40,401 to $445,850|
|20%||$445,851 or more|
Tax due dates
In the UK, the tax year starts on April 6 and through April 5. If you decide to file your taxes by paper, you need to do it before October 31.
If you do it online, you have until January 31 of the following year, and there are no extensions available past the deadline.
The UK uses a pay-as-you-earn process that goes through the employer’s payroll. Payment of taxes on income is due on January 31; you are to file all taxes before July 31 of the following year.
The deadline to file income tax in the US is usually on tax day, April 18, but you can file an extension for October 15. When this day falls on a weekend or holiday, the deadline is pushed to the next business day.
Independent contractors, small business owners, and freelancers in the USA pay estimated taxes. The IRS requires that these taxpayers pay at least 90% of their taxes throughout the year through the estimated tax payments.
The schedule for estimated tax payments is:
- April 15 for the period January 1 to March 31
- June 15 for the period April 1 to May 31
- September 15 for the period June 1 to August 31
- January 15 of the following year, for September 1 to December 31
Are taxes higher in the UK or USA?
According to the Office of National Statistics, the UK has been collecting the highest amount of tax since the 1960s. The data shows that more than 30% of the UK’s national income total is from assorted taxes such as student loan repayments, pension contributions, National Insurance payments, and income tax.
Though the tax you’ll pay in the US is less than in the UK, you’ve got to pay extra for healthcare. Additionally, the social services you can avail of in the US are far more limited than those in the UK.
Below is an image showing an average tax rate for an employee (a single worker) in various countries including Canada, the UK, and the US: