Taxes in the UK vs in the US
Updated on July 17, 2025
by Clark Stott
Clark Stott has been with Expat Tax Online since 2015. Being a dual national based in the UK, Clark has unique experience helping US citizens (and Accidental Americans) become tax compliant via the Streamlined Tax Amnesty program. Clark likes to help Americans in the UK keep their tax situations as simple as possible to avoid harsh IRS treatment.
Table of Contents
Navigating taxes in the UK and US can feel overwhelming, especially if you’re an American living in the UK. The two systems are structurally quite different, and understanding both will help you avoid mistakes and streamline the filing process.
US expats should be aware of these key taxes for both countries:
- Income tax
- Corporate tax
- VAT vs sales tax
- Property tax
- Capital gains tax
- Inheritance and estate taxes
- Social security contributions
UK vs US income taxes: How do they compare?
Both countries use progressive income tax systems, where higher income levels face higher tax rates. However, the UK applies these rates nationally, while the US system includes federal, state, and sometimes local taxes, adding complexity.
In 2025:
UK taxpayers get a personal allowance of £12,570, after which income is taxed at:
- 20% (basic rate)
- 40% (higher rate)
- 45% (additional rate for income above £125,140)
US single filers see federal brackets starting at:
- 10% (on income up to US$11,925)
- Climbing through 12%, 22%, 24%, up to 37%
- Plus state tax, which varies (New York tops out at 10.9%, California at 13.3%, while some states like Texas have no income tax at all.)
How much tax do the British pay?
The British have a tax-free allowance they can earn without paying income tax. Their personal allowance for 2025 is £12,570. After that, they are subject to income tax rates depending on their income threshold, starting at the basic rate of 20%, followed by a higher rate of 40%, and an additional rate of 45%.Â
There is no state or local income tax in the UK.
UK taxes vs US: Corporate tax rates
The UK uses a tiered system based on corporations’ profit levels, while the US has a flat federal rate. However, similar to income taxes, every state has a separate corporate tax that will be applied.
UK companies are taxed on a sliding scale:
- 19% (for small profits)
- 25% (main rate for larger profits)
US corporations pay a flat 21% federal rate, but most states tack on an additional 0–11.5%, depending on location.
When it comes to dividends, the UK charges shareholders at 8.75%, 33.75%, or 39.35%, depending on income. The US uses lower rates, typically 0%, 15%, or 20% for qualified dividends.
Dividends & corporate distributions
| Â |
UK |
US |
|
Tax on company profits |
19%-25%Â |
21% (plus state tax) |
|
Tax on dividends to shareholders |
8.75%, 33.75%, or 39.35% |
0%, 15%, or 20% |
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International taxation
| Â |
UK |
US |
|
Tax on global income |
None (UK uses territorial system) |
Yes (US taxes worldwide profits but offers credits) |
|
Tax on foreign profits |
Exempt if distributed from subsidiaries |
GILTI tax applies on foreign profits |
|
Double tax treaties? |
Yes |
Yes |
How is capital gains tax calculated in the UK vs the US?
In the US, short-term assets are treated differently than long-term assets when calculating capital gains tax (CGT). The UK imposes a fixed rate on assets regardless of how long you hold them, but residential properties are treated differently than any other asset.
UK Capital Gains Tax Rates for 2025
|
Income payer |
CGT rates for 2025 |
|
Basic income tax rate |
10% – most assets between April 6 to October 29, 2024. 18% – most assets from October 30, 2024 onwards 18% – residential property |
|
Higher income tax rate |
20% – most assets 24% – chargeable assets 24% – residential property |
In the US, short-term capital gains are treated as your ordinary income, which will be added to your earned income on your federal tax return. Long-term capital gains are subject to 0%, 15%, or 20% CGT. The tax rate varies depending on the profit amount and your filing status at the end of the year.
What is the main difference between VAT and sales tax?
The UK uses a Value Added Tax (VAT) of 20%, which is included in prices. A value-added tax (VAT) is a consumption-based tax that is applied to goods and services at each stage of the supply chain. Reduced rates apply to certain items (e.g., 5% for energy).
Sales tax is also a consumption-based tax, but it is only charged at the point of final sale to the consumer. The US doesn’t have a federal sales tax. States and cities set their own rates, which range from 0% to 7.25%, with some local add-ons (California has one of the highest combined rates).
Do property taxes work differently in the UK and the US?
Yes, In the UK, buying property may trigger Stamp Duty Land Tax (SDLT) if the value exceeds £250,000, with rates from 5% to 12%. First-time buyers get a break. It is calculated based on the property’s value.
Property tax in the UK also has regional variations. Scotland and Wales have their own property transaction taxes with different rates and thresholds.
The US has annual property taxes based on assessed value. These vary significantly: Hawaii has the lowest (0.30%), while New Jersey has the highest (2.50%).
Inheritance and estate taxes: UK taxes vs US
Comparison of inheritance and estate taxes between the UK and US:
|
Factor |
UK (Inheritance Tax – IHT) |
US (Estate Tax & Inheritance Tax) |
|
Who pays? |
Heirs/inheritors don’t pay; the estate pays before the distribution |
Estate pays federal estate tax; some states impose inheritance tax on heirs |
|
Tax-free allowance |
£325,000 per person (2025) |
US$13.61 million per person (2025) |
|
Tax rate |
40% above £325,000 |
18%-40% above US$13.61 million |
The US estate tax targets the very wealthy, while the UK IHT applies at a much lower threshold and has a strict 40% tax rate, while the US uses a sliding scale (18%-40%).
How do Social Security and National Insurance contributions differ?
UK workers contribute to National Insurance (NI):
- 8% on earnings from £12,570 to £50,270
- 2% above that
In the US, workers pay:
- 6.2% for Social Security (up to US$168,600 in 2025)
- 1.45% for Medicare on all earnings
- Employers match these contributions
Are taxes higher in the UK or the US?
Overall, taxes are generally higher in the UK than in the US, especially for middle- and high-income earners. The UK has higher income tax rates and national insurance contributions. However, in the US, you often end up paying much more privately for things like healthcare, which UK taxes cover.
Why is the UK tax burden so high?
The UK has a higher tax burden because taxes pay for public healthcare, education, welfare, and other shared services. Instead of individuals paying out of pocket for essentials like healthcare, the government collects more taxes to cover those costs collectively.
Do I have to pay taxes in both the US and the UK?
Yes, as a US citizen or Green Card holder in the UK, you are still required to report your worldwide income and potentially pay taxes in the US. However, both countries recognize the potential for double taxation faced by individuals, especially expats, and formed an agreement to mitigate this issue by establishing a US-UK tax treaty.
The US-UK tax treaty provides foreign tax credits, exemptions for certain types of income, foreign income exclusions and deductions, and tax residency rules to help US expats lessen their tax load.
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