Taxes in the UK vs. Taxes in the U.S.
Many people from the United States have chosen to relocate to the United Kingdom because of its amazing people, diverse culture, and abundant work prospects. As an American who has relocated to the UK, you must understand how the location change may influence your tax obligations.
Which country, the United States or the United Kingdom, has higher overall tax rates? The United Kingdom has taxes that are marginally more demanding than those of the United States. On the other hand, the scope and availability of social services in the United States are significantly narrower than in the United Kingdom.
This guide examines the differences and similarities between the tax systems of the United Kingdom (UK) and the United States (US). It investigates their prices and due dates, guaranteeing you are well educated on this topic before relocating.
What Are the Comparisons Between Tax Rates in US and UK?
In the United Kingdom, Her Majesty’s Revenue and Customs (HMRC) administers all taxes. The nation maintains a progressive tax system, which means that the higher your income, the more percentage of taxes you are required to pay.
Due to the fact that taxation is handled on both the federal and state levels in the United States, each state has its unique tax rate. In this country, your citizenship status determines whether or not you have to pay taxes, not where you live.
What Are the Different Taxable and Non-taxable Incomes in the UK and US?
The United States and the United Kingdom have differing laws on what kinds of income are subject to taxation and what kinds are exempt from taxation.
United Kingdom
In the United Kingdom, various taxable incomes include;
- Wages, including all applicable bonuses, tips, and holiday pay.
- Pensions or retirement annuity plans (Up to 25 percent of the policy’s value).
- Profits from self-employment before deducting expenditures, if they are greater than one thousand pounds.
- Benefits associated with your employment, such as health insurance.
- Payments for redundancy that are greater than £30,000.
In the United Kingdom, various non-taxable incomes include;
- Monetary compensation in the event of a job loss
- Allowances given for adoption
- Life Assurance plans.
- Scholarships and grants for higher education
- Divorce or separation maintenance payments.
- Benefits provided by a foreign social security system.
- Benefits for those with disabilities or wounds.
- Wins from betting activities such as football pools and the lotto
- Disability benefits for members of the armed forces.
United States
According to IRS, the following are the non-taxable incomes available;
- The payments for child support.
- Adoption costs that are eligible for financial reimbursement.
- Gifts, bequests, and inheritances in the form of cash rebates on things that you acquire from a dealership, retailer, or producer gifts, and inheritances.
- Perks related to medical care
- Compensation payments for divorce.
- Welfare benefits.
- Unemployment compensation.
In the United States, taxes are not levied on the following types of income:
- Payments for disability retirement originating from a plan paid for by the employer.
- The funds and earnings derived through offshore accounts.
- The interest on municipal bonds.
- The first $3,000 of your income is offset by your capital losses.
- Payments for injuries and illnesses by the employer.
- The residual balance of a loan or obligation that is forgiven or canceled due to the cancellation or forgiveness.
- Earnings derived through the exchange of goods or services for another item.
- The property you were given in exchange for your services valued at its true market price.
What Are the Income Taxes in the United States and the United Kingdom?
United Kingdom
When it comes to taxes, the more money you make in the UK, the more you have to pay. After considering all of your exemptions and deductions, the amount of your taxable income is determined.
If your annual income is less than £12,570, it will be designated a personal allowance and will not be subject to taxation beginning in 2022. The amount that is left over after deducting your allowance is the one that is considered taxable income.
|
Tax rate brands |
Income 22/23(pounds? |
|
0% |
0-5,000 |
|
20% |
0-37,700 (accounting tax-free allowance) |
|
40% |
37,701-150,000 |
|
45% |
more than 150,000 |
What if I’m way behind on my U.S. tax returns?
There is a special IRS program to help you catch up on your U.S. taxes safely, without fines and penalties
STREAMLINED AMNESTY
It’s for American citizens that didn’t know they had to file U.S. tax returns each year, and have therefore fallen behind. Some more than 30 years! With the IRS Streamlined Procedure, say goodbye to overdue tax returns, late fees, and penalties. If you have children, we can backdate your Child Tax Credit Refund for 3 years.
Get a quote here.
United States
The Internal Revenue Service (IRS) is responsible for collecting and administering income tax in the United States. The tax rates range from 10 percent to 37 percent, although they typically fall in that range.
The tax system in the United States is progressive, which means that persons with higher taxable incomes are subject to higher tax rates. Because there are no thresholds below which income is exempt from taxation in the United States, all earnings are subject to payment of taxation.
The United States currently has seven different tax brackets for individuals subject to the federal income tax: the 10 percent, 12 percent, 22 percent, 24 percent, 32 percent, 35 percent, and 37 percent brackets. The bracket shifts depending on the taxpayer’s filing status as well as the amount of income that is taxable.
The tax rate ranges from ten percent for those making less than nine thousand eight hundred fifty dollars to thirty-seven percent for those making more than five hundred twenty-three thousand dollars.
If you are married, you can file your taxes jointly with your partner. In this scenario, the amounts for the various income bands will be increased by a factor of two, but the percentage will remain the same.
In the United States, you are required to pay federal income tax as well as state taxes in some of the states. For instance, the state tax rate in New York is 8.8 percent, and you are required to pay it.
|
Tax rate brands |
Income 22/23($) |
|
10% |
0 to 9,875 |
|
12% |
9,876 to 40,125 |
|
22% |
40,126 to 85,525 |
|
24% |
85,526 to 163,300 |
|
32% |
163,301 to 207,350 |
|
35% |
207,351 to 518,400 |
|
37% |
more than 518,401 |
Social contributions
United Kingdom
In the United Kingdom, social contributions are referred to as National insurance contributions (NICs). These social contributions include pension plans, health insurance, unemployment insurance, worker’s compensation, and the cost of welfare.
Workers are responsible for paying 13.25 percent of their gross wages into the social security system. The national insurance contribution (NIC) is 13.8 percent of an employee’s wage for the employer, and this percentage also extends to employee benefits like company cars.
If you are self-employed, you are required to make payments at a rate of 10.25 percent on any income between £9,880 and £50,270 annually. You will be subject to an extra rate of 3.25% if your income exceeds that threshold. In addition, your weekly payment is a flat fee of $3.05.
People can pay taxes for social contributions in the country where they are working, thanks to an agreement about social security that has been reached between the United States of America and the United Kingdom. If you are self-employed, you must pay taxes in the nation where you currently reside.
If you are a citizen of the United States and your employer transfers you to the United Kingdom for fewer than five years, you will not be paying the tax while there. However, you will continue to be covered by social security on US taxes even after you leave the country.
United States
There are two types of social contribution taxes in the United States: medicare and social security.
The employee and the employer contribute 1.45 percent of total wages to Medicare insurance taxes. People with incomes above $200,000 are subject to an additional Medicare levy of 0.9 percent.
Self-employed individuals contribute 2.9% of their total net income to Medicare.
The tax rate for social security is 6.20 percent for both employees and employers, or 12.4 percent on the first $147,000 of wages paid, whichever is higher.
Property taxes
United Kingdom
There are two types of property taxes in the United Kingdom: council tax and stamp duty land tax (SDLT). The stamp duty land tax (SDLT) is a tax levied on residential properties valued at more than £125,000 and non-residential assets valued at more than £150,000.
United States
Property tax in the United States is administered at the state level; consequently, the amount of property tax you pay varies depending on the state in which you reside. The rates are extremely high in certain states, while in others, they are minor or nonexistent. For a standard-sized home in New Jersey, annual property taxes are above $15,000 per year.
Sales Tax
United Kingdom
In the UK, value-added tax (VAT) is applied to most goods at 20%. However, the value-added tax does not apply to many items, including real estate, financial transactions, or postage stamps.
United States
In the United States, there is no value-added tax; each state has its own sales tax varying from 2.9% to 7.25%.
Some states impose an additional fee, but it does not exceed 1 to 5 percent. Multiple states have zero or discounted rates on production machinery, household utilities, and food, among other items.
Tax deadlines
United Kingdom
In the United Kingdom, the tax year runs from April 6 to April 5. If you submit your taxes on paper, you must do so by October 31.
If you submit the form online, you have until January 31 of the subsequent year to do so, and no adjustments are permitted.
United States
The normal date for filing income taxes in the United States is April 15, but you can request an extension until October 15. If this date falls on a weekend or holiday, the deadline is extended to the following working day.
US Citizen In The UK
If you’re a US citizen or Green Card holder living outside the United States, you get an automatic 2-month filing extension to June 15.
US tax is still due by April 15, regardless of any extension and interest is charged if your payment is late.
If you need more time to file your tax return, you can request an extension to October 15, but you must request the extension on Form 4868 by June 15.
Many US citizens living in the UK request the October 15 extension. This extra time allows them to file their UK taxes first, then file their US tax return.
Spread the word. Please share… 👉
