UK Taxes vs. US Taxes: A Complete Comparison

Taxes are a fact of life, but not every country taxes its residents the same. The UK and the US are no exception. For individuals and businesses straddling both worlds, understanding these two systems is key to optimizing your taxes and saving money.

The UK only taxes residents, meaning you only pay taxes there if you live there for a certain amount of time. The US, by contrast, taxes citizens (and Green Card holders) on their worldwide income, no matter where they live.

This distinction shapes everything from how much you pay in income tax to whether you’re double-dipping into social security systems. It also makes the UK-US tax treaty an essential lifeline for avoiding double taxation.

In this detailed comparison, we’ll walk you through every major tax category side-by-side, unpacking the rules, rates, and real-world impacts with clarity and depth. Whether you’re an expat in London, a business owner eyeing transatlantic expansion, or just curious about how these systems stack up, this guide has you covered. Let’s dive in.

UK vs. US Taxes at a Glance

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	State sales taxes, 0% to ~10%
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

As you can see, the UK leans toward higher, uniform rates, while the US mixes lower federal rates with a patchwork of state variables.

How Income Tax Works in the UK vs. the US

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

In the UK, your tax bill depends on where you lay your head, not where you were born. The Statutory Residence Test determines if you’re a UK resident — spend 183 days or more in the country in a tax year, and you’re in. Other factors, like a permanent home or substantial ties (think job or family), can also tip the scales. If you’re a resident, HM Revenue & Customs (HMRC) taxes your worldwide income.

Previously, if you were non-domiciled — meaning your permanent “home” is elsewhere — you could opt for the remittance basis, paying tax only on UK income. However, this has been abolished. The UK’s new Foreign Income and Gains (FIG) regime, effective from 6 April 2025, replaced the longstanding non-domiciled (Non-Dom) tax status. This reform aims to simplify the tax system while maintaining the UK’s appeal to international talent.

To qualify for the FIG regime, an individual must be a UK resident under the Statutory Residency Test and have been non -UK resident for at least 10 consecutive years before becoming UK resident. The regime applies for the first four tax years of UK residence, starting from the year of arrival.

Below is a summary of what the FIG regime means for taxpayers:

• Qualifying individuals can claim relief from UK tax on eligible foreign income and gains for up to four years. 
• Relief must be claimed through the Self Assessment Return.
• Claims can be made for specific sources of income and gains
• Claiming the relief will result in loss of the income tax personal allowance of £12,570 , the capital gains tax annual exemption of £3,000 and eligibility for certain deduction.

UK Income Tax Rates

The rates for 2024/25 (assumed stable into 2025 unless announced otherwise) are progressive:

• 0% on the first £12,570 (Personal Allowance — a tax-free cushion)
• 20% from £12,571 to £50,270 (basic rate)
• 40% from £50,271 to £125,140 (higher rate)
• 45% above £125,140 (additional rate)

Most Brits pay through Pay As You Earn (PAYE), where employers deduct tax before you see your paycheck. If you’re self-employed, a landlord, or earning over £150,000 as an employee (where the allowance shrinks), you must file a Self Assessment by January 31 after the tax year ends. Miss it, and you’re hit with a £100 fine, plus 5% penalties on unpaid tax after 30 days.

US Income Tax

In the US, the IRS doesn’t care where you live. If you’re a citizen, you have to file a tax return every year to report every dollar you’ve earned worldwide. The US is one of only two countries with citizenship taxation, the other being Eritrea. Federal tax rates for single filers in 2024/25:

• 10% on $0 to $11,600
• 12% on $11,601 to $47,150
• 22% on $47,151 to $100,525
• 24% on $100,526 to $191,950
• 32% on $191,951 to $243,725
• 35% on $243,726 to $609,350
• 37% on $609,351 or more

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%.

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 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 pay an extra 0.9% Medicare tax above $200,000 (if filing single).

The US-UK Totalization Agreement

Signed in 1984, this treaty prevents expats from having to pay into both systems. For example, a US expat in London would pay NICs, not SS, preserving benefits in one system — crucial for cross-border workers.

UK VAT vs. US Sales Tax

The value-added tax (VAT) is the UK’s equivalent of the US sales tax. Here’s how they compare. The VAT is a 20% tax baked into the price of most goods and services. Reduced rates apply for some goods, such as utilities and certain groceries. Other goods and services that are considered to be essential are entirely exempt. This includes certain food items and kids’ clothes. Businesses with turnover above £90,000 must register and collect the VAT, reclaiming it on business purchases.

US Sales Tax

The US has no federal VAT. Instead, states and localities set sales taxes, ranging from 0% (Alaska, Delaware) to ~10% (Tennessee, combining state and local rates). It’s tacked on at the register, not built into the price, averaging 6% nationally.

Corporate Tax: UK vs. US Business Burdens

Businesses operating in both the US and the UK face taxes on their profits, though the two countries handle it differently.

UK Corporation Tax

The UK taxes company profits at 25% above £250,000, with a 19% small profits rate below £50,000 and marginal relief in between. The Corporation Tax Return (CT600) must be filed within 12 months of the end of the company’s accounting period. Payments are due nine months and one day after the accounting period, with large firms paying quarterly.

US Corporate Tax

Federally, the US corporate tax rate has been a flat 21% ever since the 2017 TCJA cut it from 35% to boost global competitiveness. State taxes pile on, can add to this, though it depends on the state. In Nevada, the rate is 0%, while in California it’s 8.84%. The due date is April 15 (or 4th month post-fiscal year), extendable to October 15.

UK vs. US Capital Gains Tax

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
Tax Rate	18%–24%	0%–20% if held over a year; up to 37% if sold within a year
Tax-Free Allowance	£3,000 per year for all gains	$0 for stocks or investments; $250,000 (single) or $500,000 (married) for main home sales only
Reporting	Self Assessment filed and payment made by January 31	Form 1040, Schedule D, by April 15

Do US Expats in the UK Have to File Taxes in Both Countries?

Yes. US citizens and Green Card holders must file a US tax return annually, even while living abroad. UK tax residency does not exempt you from your US filing obligations. However, the UK–US tax treaty and provisions like the Foreign Earned Income Exclusion (FEIE) and Foreign Tax Credit (FTC) help prevent double taxation.

Expats’ Tax Options

• Foreign Earned Income Exclusion (FEIE): Allows expats to exclude up to $130,000 (2025 limit) of foreign-earned income from US taxation if they meet either the Physical Presence or Bona Fide Residence test.
• Foreign Tax Credit (FTC): Offers a dollar-for-dollar credit on foreign income taxes paid, which can offset US tax liability. Best for expats in high-tax countries like the UK.
• Tax Treaty Provisions: The UK–US tax treaty covers specific scenarios, including pensions and Social Security benefits, to avoid double taxation and resolve residency conflicts.

Together, these provisions help most expats reduce or eliminate their US tax liability entirely.

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.

Which Tax System Is Better?

Determining which tax system is “better” depends largely on individual circumstances, including income level, types of income, and personal preferences regarding public services and social benefits.

Key Takeaways:

• Taxation Basis: The UK employs a residency-based system, taxing residents on their worldwide income. The US uses a citizenship-based system, taxing all citizens regardless of where they live.​
• Income Tax Rates: The UK has higher income tax rates, with the top rate at 45%, while the US federal top rate is 37%, potentially increased by state taxes.​
• Social Benefits: The UK’s National Insurance Contributions fund comprehensive healthcare (NHS) and other benefits, whereas US payroll taxes fund Social Security and Medicare, with healthcare largely privatized.

Get Help from Greenback!

Navigating the complexities of the UK and US tax systems can be challenging, especially for expatriates. To ensure compliance and optimize your tax situation, consider consulting with experts in expat tax services. Greenback Expat Tax Services specializes in assisting US expats with their tax obligations.

Recognizing that many of our American clients in the UK also require local tax preparation services, we have teamed up with a UK Chartered Accountant to bring this service in-house. 

Have questions about the process or next steps? Contact us, and one of our Customer Champions will happily address all your concerns.