If you are a citizen or resident of the UK, you will be subject to several different kinds of taxes depending on your income and the value of other relevant assets you hold. Taxes in the UK can be levied by several authorities including central and local governments. As a resident, you will likely be subject to a national insurance tax and the council tax, as well as taxes on personal income, capital gains, and inheritance. Additionally, you will pay a VAT tax every time you shop for most products, regardless of whether or not you are a British resident. If you own or run a company in the UK, you must also be mindful of the UK corporate tax rate, which applies to most profit-generating businesses.
Taxes on Personal Income
- Taxes on personal income in the UK vary and not all types of income are taxed.
- United Kingdom income tax rates are not flat; the percentage (and therefore amount) you pay is based on the amount of money you earn yearly.
- United Kingdom income tax is levied on the following types of incomes:
- Any salary you earn at a job (including self-employment)
- Income from rental properties
- Income from a trust
- Interest on any savings that exceed your saving allowance
- Any benefits you derive from your employment
- Almost all kinds of pensions
- Certain state benefits
- Certain grants
- The United Kingdom income tax rates are as follows:
- 20% for incomes between £12,500 and £50,000
- 40% for incomes between £50,000 and £150,000
- 45% for incomes above £150,000
- In addition to how much money you make each year, the amount of yearly income tax you must pay depends on your “personal allowance.” For United Kingdom income tax purposes, your personal allowance is the amount of money you can make before your income tax requirement kicks in. A kind of income threshold, you are therefore taxed once your income exceeds your personal allowance.
- While personal allowances correspond to different tax brackets, £12,500 is the standard personal allowance in the UK. This means that people who make between £0-£12,500 do not have to pay any income tax.
- According to official UK tax law, your personal allowance will be reduced by £1 for each £2 of money received (income) greater than the £100,000 threshold.
- Therefore, the more money you make the smaller the amount of your “personal allowance.” For example, if you make £125,000 per year your personal allowance is effectively zero.
- Older people (those born pre-1948) are traditionally eligible for higher personal allowances, as are blind persons and those who are married.
- Please note that United Kingdom income tax rates for people living in Scotland are not the same as those paid by people living in England.
- If you would like to estimate your United Kingdom income tax rate based on your current financial situation, you can click here to access an income tax calculator.
- Summary: While United Kingdom income tax rates may seem high relative to other developed countries like the United States, they are low when compared with those of other European countries, including Germany, France, and the Nordic states.
Business Tax in UK Countries
- Business tax in UK countries mainly refers to Britain’s corporate tax rate.
- Business tax in the UK could also include capital gains taxes on business assets.
- The small business tax for UK companies applies to those generating revenues under 300,000.
UK Corporate Taxes
- Limited companies, foreign companies with branches in the UK, and clubs (cooperatives/other local groups/non-incorporated associations) must pay the UK corporation tax.
- As of the year 2020, the main UK corporate tax rate is 19%.
- UK corporate taxes are based on the amount of revenue a company generates.
- Please note that Ring Tax Companies (companies that work in the oil industry either in the UK or on the UK continental shelf) are subject to different rates of UK corporate taxes.
- When you pay your corporate tax is determined by the amount of revenue your business generates, with companies that generate profits over £1,500,000 having to file in installments, and those generating £1,500,000 and below paying 9 months and 1 day post your financial year or accounting period.
- Summary: At 19%, the standard UK corporate tax rate is lower than that of both the G7, the OECD average, and the United States.
- In addition to United Kingdom income tax, you will have to pay a tax on capital gains, should you make money by selling an asset that has appreciated.
- Please note that you will have to pay capital gains only if your yearly gains are over your “annual exempt amount,” a tax-free allowance of £12,300 (£6,150 for trusts).
- Assets that you must pay capital gains on include:
- Personal possessions over £6,000
- Supplemental property, or your main home, if its income generating (i.e. rented out)
- Shares outside of a PEP or ISA
- Business assets, including:
- Registered trademarks
- A business reputation
- Property (land and structures)
- Fittings as well as fixtures
- Assets that are exempt from capital gains include:
- Your house (if it’s indeed your primary residence)
- Personal possessions under £6,000
- Gifts to your spouse or (civil) partner
- Remember that capital gains taxes are separate from United Kingdom income tax, which is payable on income rather than gains.
Self Employed Tax UK
- If you work for yourself in the UK you are categorized as a “sole trader” who is subject to United Kingdom income tax rates as well as corporate tax rates.
- You should register as a sole trader online with the Her Majesty’s Revenue and Customs (HMRC) department, which you will file your taxes through every year.
- You are also classified as “self-employed” if you run your own business, can set your own hours, have multiple customers at once, furnish your own equipment for your business purposes, and generate revenue by selling goods and services.
- If you work for yourself you are therefore still subject to an income tax. The self-employed tax UK (or income tax) therefore applies to those who generate profits, including digital content such as apps or websites.
- One way to avoid paying the self-employed tax for UK is through incorporation, which creates a legal barrier between yourself and your company.
Small Business Tax UK
- The small business tax of 19% for UK companies therefore applies to all companies, even those which generate less than £300,000 in profits and are considered as small businesses.
Other British Taxes
- All British residents over the age of 16 who are either earning more than £183 a week or £6,475 year (if self-employed) must pay a National Insurance tax. How and when you pay this tax is determined by what “class” you fall into (there are four main classes) -i.e. what kind of employee you are and also your take home pay.
- For employed persons earning between £792- £4,167 a month, the rate is 12%; for those earning over £4,167 a month, the rate is 2%.
- Finally, some people are subject to the British inheritance tax of 40% for properties worth over £325,000. You normally do not have to pay inheritance taxes in the event that your spouse inherits your estate or if you leave it to charity.
For more information about UK immigration, and for help generating a personal UK tax calculator to understand your specific United Kingdom income tax rates, contact Guide Consultants.