Taxes in the UK vs in the US
Published on October 28, 2022
Updated on October 15, 2024
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
What is the difference between taxes in the UK vs. taxes in the US?
The tax systems of the UK and the US significantly differ in treatment and imposition. UK’s taxes are marginally more demanding than those of the US. On the other hand, the scope and availability of social services in the US are significantly narrower than in the UK.
How do US and UK tax rates differ?
In the United Kingdom, His Majesty’s Revenue and Customs (HMRC) administers all taxes. The nation maintains a progressive tax system known for its simplicity and automation for most taxpayers.
Since taxation is handled at the federal and state levels in the United States, each state has its tax rate. In the US, an individual’s citizenship status determines whether or not they have to pay taxes, not where they live.
Why use the IRS Streamlined Tax Amnesty Program?
It’s for American citizens that didn’t know they had to file US 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.
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What are the different taxable and non-taxable incomes in the UK and the US?
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 more significant than one thousand pounds.
- Benefits associated with employment, such as health insurance.
- Redundancy payments that are greater than £30,000.
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
Various taxable incomes include:
- Wages and salaries, including overtime pay, bonuses, and tips.
- Self-employment income and contractor payments.
- Investment income includes dividend, interest, and capital gains income.
- Retirement income includes traditional IRA and 401(k) distributions, Social Security benefits, and pension.
- Unemployment benefits.
Various non-taxable incomes include:
- 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 was acquired from a dealership, retailer, or producer gifts, and inheritances.
- Benefits related to medical care
- Compensation payments for divorce.
- Welfare benefits.
What are the income taxes in the US and the UK?
United Kingdom
The tax system in the UK is progressive. The higher an individual’s taxable income, the higher the tax rate. After considering all the exemptions and deductions, the amount of taxable income is determined.
Every individual in the UK has a personal allowance, which we can earn without paying income tax. If income exceeds the personal allowance, the individual must pay tax on all earnings above the personal allowance at the applicable income tax rate, but the allowance remains untaxed.
The personal allowance for the year 2024 is £12,570.
United States
The Internal Revenue Service (IRS) collects and administers income tax in the United States. The tax system is also progressive in the US, and because there are no thresholds below which income is exempt from taxation, all earnings are subject to tax.
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