The UK Tax System and Tax Rates for Expats
We've written this blog post to make it easier for you to understand the UK's taxes and tax rates.
Check out the table of content:
An overview of the UK tax system
Different types of taxes and how they work in the UK
Income tax rates in the UK
Corporation tax rates in the UK
Capital gains tax rates in the UK
Tips for reducing your overall tax bill
An overview of the UK tax system
The amount of income tax you pay depends on several things. These include how much you earn, your job, and if you work for yourself. It's worth noting that there's something called a personal allowance. Below you can read the different types of main taxes in the UK.
Different types of taxes and how they work in the UK
There are main taxes types in the UK you should know. First is the income tax, which is based on how much you earn. We also have council tax, which pays for local services and depends on the home you live in.
But it's not just these taxes. The UK has indirect taxes too, like the value-added tax (VAT) on what you buy. Plus, for some goods, there's extra duty to pay. All of these taxes keep the UK going. And don't forget, each tax year begins on the 6th of April, so be ready to sort out what you owe.
Income tax rates in the UK
As a UK taxpayer, it's key to know about income tax rates. Not everyone has to pay income tax, and even if you do, how much you pay depends on your income and a few other things.
If you earn between £12,501 and £50,000, you'll pay a basic rate tax of 20%.
If your earnings are from £50,001 to £150,000, you'll pay a higher rate tax of 40%.
And if you're lucky enough to earn more than £150,000, you'll need to pay an additional rate tax of 45%.
Corporation tax rates in the UK
If you start or own a business, it's key to grasp the basics of corporation tax. This tax is for limited companies and is calculated using the firm's profits. At present, the UK has set the corporation tax at 19%, but this could shift each year. Small firms with profits up to £300,000 could be eligible for the same 19% rate. To ensure you're paying just the right amount of corporation tax, it's worth getting advice from a qualified accountant. Remember, when you pay your taxes, you're supporting public services and boosting economic growth.
Capital gains tax rates in the UK
When it comes to selling things like properties or investments in the UK, it's key to know about capital gains tax rates. This tax comes into play when you've made a gain on something you've sold. The rate of tax can change based on your income. Things that might be taxed include properties, stocks, or shares, and how much tax you pay might depend on how long you've had the asset. The thought of capital gains tax shouldn't stop you from selling. Instead, learn about it and find ways to lower your tax bill. With the right approach, you can make the most of your investment without giving away too much of your profit.
Here are the basic rates you must pay when selling properties or investments in the UK:
Residential Properties:
Basic Rate Taxpayer: 18%
Higher Rate Taxpayer: 28%
Other Assets (e.g., Stocks, Shares):
Basic Rate Taxpayer: 10%
Higher Rate Taxpayer: 20%
For higher incomes, paying taxes might be a bit more complex. In such cases, submitting a self-assessment tax return to HM Revenue Customs becomes necessary. This helps to keep track of your tax receipts, savings income, and state pension, ensuring that you pay the correct amount. Remember, there are tax-free allowances that can be beneficial.
Tips for reducing your overall tax bill
By keeping careful records and working with a qualified tax professional, you can ensure that you don't miss any opportunities to lower your tax bill. Additionally, consider contributing to tax-advantaged retirement accounts, like an IRA or 401(k), which can reduce your taxable income.
Paying taxes as an US expat
As an expat from the US, you'll also have to pay taxes, or at least report them in the US. This process can be quite stressfull and small mistakes can result in big fines. At Relocately, we noticed this problem and thus cooperated with ExpatFile to provide expats with a seamless way to file US expat tax returns while ensuring compliance with Foreign Bank and Financial Accounts (FBAR) regulations. Trusted by thousands of American expats, the company offers operational efficiency, peace of mind with its user-friendly design, and a strong dedication to customer satisfaction.
Check all our services here:
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