UK vs. US Taxes in 2025: A Complete Guide for Expats and Dual Citizens
Taxes in the UK vs. taxes in the US—how different are they, really? If you earn income, own property, or live across both countries, understanding the rules isn’t just helpful—it’s essential.
This guide breaks down the UK and US tax systems side-by-side, with practical insights for American expats, UK nationals living in the US, and dual citizens navigating both. Whether you’re figuring out which country has higher taxes or just trying to avoid filing mistakes, this is your one-stop comparison.
At a Glance: UK vs. US Tax Systems
TL;DR: The UK’s system tends to be more centralized, while the US varies widely depending on your state of residence.
| Tax Factor | UK Tax System | US Tax System |
| Tax Basis | Residency-based: Taxes UK residents on worldwide income | Citizenship-based: Taxes US citizens on worldwide income |
| Top Income Tax Rate | 45% on incomes over £125,140 | 37% federal, plus state taxes up to 13.3% |
| Social Security | National Insurance Contributions (NICs) | Social Security and Medicare taxes |
| Sales Tax | 20% VAT on most goods and services | 0%–10% state/local sales tax added at checkout |
| Corporate Tax | 25% on profits over £250,000 | 21% federal, plus state taxes up to 12% |
| Capital Gains Tax | 18% – 24%, depending on income and asset type | 0%–20% long-term, up to 37% short-term |
From April 2025, the UK’s new Foreign Income & Gains (FIG) regime allows eligible new residents to temporarily shield foreign income from UK tax for four years—modifying the practical impact of residency-based taxation during that period.
Income Tax: UK Tax Rates vs US Tax Rates
Income tax is the heavyweight in both systems, but the rules of the ring couldn’t be more different. Let’s break it down with context, history, and examples to show how each country punches.
UK Income Tax Basics
The UK’s tax system is based on residency, determined by the Statutory Residence Test (SRT). Key thresholds:
- 183+ days in the UK? You’re likely a tax resident.
- Fewer than 183 days? The “sufficient ties” test applies: home, family, work, etc.
Income Tax Rates for 2024/25 (England, Wales, and Northern Ireland):
- 0% on income up to £12,570 (Personal Allowance)
- 20% on £12,571–£50,270
- 40% on £50,271–£125,140
- 45% above £125,140
Most employed individuals are taxed through PAYE (Pay As You Earn). If you’re self-employed, earn rental income, or earn above £150,000, you’ll likely need to file a Self Assessment tax return.
New Foreign Income & Gains (FIG) Regime (from April 2025):
New to the UK and haven’t lived there for the last 10 years? You may qualify for 4 years of UK tax exemption on foreign income and gains—even if remitted to the UK. In exchange, you give up the personal allowance and CGT exemption.
Learn more: 8 Tax Moves to Consider Before Moving (Back) to the UK
US Income Tax
The US taxes based on citizenship, not where you live. All citizens and Green Card holders must file annually, no matter where they live.
Federal Tax Brackets for Single Filers (2024/25):
- 10% on $0–$11,600
- 12% on $11,601–$47,150
- 22% on $47,151–$100,525
- 24% on $100,526–$191,950
- 32% on $191,951–$243,725
- 35% on $243,726–$609,350
- 37% above $609,351
Taxes are due April 15, but expats get an automatic extension to June 15, and anyone can request a further extension to October 15 via Form 4868. Late penalties stack at 5% per month, maxing at 25%.
Settling into life across the pond? Our UK Country Guide packs the must-know rules, deadlines, and smart savings tips for Americans in Britain—all in one handy spot. Give it a look before you file.
Social Security Contributions: NICs vs. US Payroll Taxes
Both countries tax wages to fund social benefits, but the UK’s National Insurance Contributions (NICs) and the US Social Security/Medicare duo diverge in scope and cost.
UK National Insurance Contributions (NICs)
NICs are the UK’s payroll tax, bankrolling the National Health Service, state pensions, and benefits like unemployment support. Employees and employers both chip in, while the self-employed get a lighter load with an added flat fee.
- Employee Rate: 8% on earnings from £12,570 to £50,270, dropping to 2% above that
- Employer Rate: 15% on anything over £5,000 per worker
- Self-Employed: 6% on profits £12,570 – £50,270, plus £3.45/week Class 2 if profits top £6,725
US Social Security and Medicare Taxes
In the US, payroll taxes are split into Social Security (SS) for retirement/disability and Medicare for senior healthcare. Employees and employers each pay, while the self-employed shoulder both.
- Employee Rate: 6.2% SS (up to $168,600 in 2025) + 1.45% Medicare (no cap)
- Employer Rate: Matches the employee: 6.2% + 1.45%
- Self-Employed: 12.4% SS + 2.9% Medicare (15.3% combined)
- High Earners: Add 0.9% Medicare on income over $200,000
The US-UK Totalization Agreement
The US-UK Totalization Agreement (1984 treaty) prevents expats from double social security taxation (e.g., paying both UK National Insurance and US Social Security). It ensures you generally pay into only one system and can combine work credits from both countries to qualify for benefits.
VAT vs. Sales Tax: What You Pay at Checkout
The value-added tax (VAT) is the UK’s equivalent of the U.S. sales tax. Here’s how they compare:
VAT (Value Added Tax) in the UK:
- What it is: A tax built into the price of almost everything you buy.
- How much: Usually 20%, but some things (like home energy) are 5%, and essentials (like most food and kids’ clothes) have 0% tax.
- How you see it: The price tag usually includes the VAT, so what you see is what you pay.
- Who collects: Businesses that sell over a certain amount (£90,000) have to register to collect this tax and send it to the government.
US Sales Tax:
- What it is: A tax added to the price of goods and services, but it’s not a nationwide rule.
- How much: Varies a lot! Some states (like Delaware or Oregon) have 0% sales tax. Others, and even cities within states, can charge over 10%.
- How you see it: The price tag usually doesn’t include sales tax. It’s added on at the checkout when you pay.
- Who collects: Individual states (and sometimes local cities/counties) decide their own rates, and businesses collect it on their behalf.
Capital Gains Tax (CGT)
In the UK and the US alike, selling assets such as stocks, homes, or crypto triggers a tax on any gains. Below is a comparison of the two systems.
| CGT Factor | UK | US |
| Rate | 18%–24% | 0%–20% long-term; up to 37% short-term |
| Exemptions | £3,000 annual allowance | $250,000–$500,000 on home sale (if eligible) |
| Reporting | Via Self Assessment | Form 1040 + Schedule D |
US tax law distinguishes long-term and short-term capital gains, with a higher rate applied if assets are held <1 year.
Corporate Tax Comparison
Businesses operating in both the US and the UK face taxes on their profits, though the two countries handle it differently.
UK Corporation Tax
UK companies pay tax on profits at a tiered rate:
- 19% on profits under £50,000
- 25% on profits over £250,000
- Marginal relief applies for profits in between
Returns are submitted via Form CT600 within 12 months after the accounting period ends. Payments are due nine months and one day after the period ends. Larger companies may be required to pay in quarterly installments.
US Corporate Tax
The US federal corporate tax rate has been a flat 21% since the 2017 Tax Cuts and Jobs Act (TCJA), down from 35%.
On top of that, state-level corporate taxes apply and vary widely:
- 0% in states like Nevada and South Dakota
- 8.84% in California
Corporate tax returns are generally due by April 15, or the 15th day of the fourth month after the end of the fiscal year. Extensions are available.
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Do You Have to File in Both Countries?
Yes. But thanks to tax treaties and credits, most avoid being taxed twice.
Key Tools to Avoid Double Taxation:
- Foreign Earned Income Exclusion (FEIE): Exclude up to $130,000 in foreign earned income
- Foreign Tax Credit: Offset US taxes with UK taxes paid
- Treaty Provisions: Help with pensions, residency conflicts, and benefits
Tax Planning Scenarios
| Persona | Lives In | Income | Tax Tip |
|---|---|---|---|
| US expat working in London | UK | $150,000 | Use FTC or FEIE to avoid double tax. File US + UK. |
| Dual citizen with rental income | UK + US | $90,000 | Report global income to both, use tax treaty rules. |
| UK citizen moving to Texas | US | £75,000 | No UK tax once residency ends, but expect US reporting. |
| Remote worker living nomadically | Global | $110,000 | FEIE possible, but watch days spent in each country. |
Making Tax Digital (MTD): A New UK Reporting Requirement
Starting April 2026, MTD will require digital record-keeping for self-employed individuals and landlords with income over £50,000. You’ll need:
- Quarterly reporting
- Digital tools (no HMRC portal filing)
- End of Period Statement + Final Declaration
Learn more: Your Guide to MTD for Expats
FAQs
Do UK citizens pay US tax?
Only if they are also US citizens or Green Card holders. The US taxes based on citizenship, not residency.
Which country has higher taxes, the UK or the US?
It depends. The UK has higher national income tax rates and a 20% VAT, but the US adds state taxes that can significantly increase the burden in some areas.
How can US expats in the UK reduce their tax burden?
Use the FEIE, FTC, and tax treaty provisions to avoid being taxed twice on the same income.
Do I need to report foreign accounts?
Yes. If your total foreign account balances exceed $10,000, you must file an FBAR. If your foreign assets exceed IRS thresholds, you may also need to file Form 8938.
Are taxes higher in the UK or the US?
It depends on income and location. The UK has higher national rates, but many US states add state-level taxes, sometimes pushing the total higher.
Is the UK a high-tax country?
By global standards, yes—especially for higher earners. However, public services like the NHS reduce out-of-pocket expenses elsewhere.
Is tax 20% in the UK?
The basic income tax rate is 20%, but it only applies to income between £12,571 and £50,270. Higher earnings are taxed at 40% or 45%.
How much tax does the UK collect?
The UK government collects over £1 trillion annually in taxes, with income tax and National Insurance making up the bulk.
Final Takeaway: Which System Is Better?
It depends on your income level, residency, and financial goals.
- The UK has a centralized system and higher social services.
- The US gives more room to optimize taxes—especially for mobile, high-income earners—but requires careful planning to avoid double filing.
Need Help Navigating UK and US Taxes?
Greenback Expat Tax Services specializes in filing for Americans abroad—and now offers UK tax preparation through our Chartered Accountant partner.
Have questions about the process or next steps? Contact us, and one of our Customer Champions will happily address all your concerns.
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