If you’re considering moving from the States, then chances are you’ll already know a thing or two about how we do things over here. Our weather isn’t great (we love to talk about it, though), queuing is a national sport and having tea and biscuits is one of our favourite pastimes.
However, when it comes to our tax system, things get a little more complicated.
Whilst there are some similarities between US and UK taxes (namely, the fact that you’ll be in hot water if you don’t get them done on time), many of our systems work differently — from payment amounts and deadlines to legal obligations.
So, to avoid any unpleasant surprises and ensure you can focus on settling into your new home when you touch down on British soil, here’s a list of some of the things you need to know about expat tax before the big move.
What US expats need to know about the UK tax system
You pay taxes for a lot of things in the UK, including inheritance and capital gains. But for now, let’s focus on income tax.
You’ll pay more income tax in the UK
Social contributions are mandatory taxes in both the UK and the US. But UK employees pay 12% on monthly earnings between £1,048 and £4,189 towards National Insurance, whereas US employees pay 6.2% of their earnings to social security and 1.45% to Medicare. Both must be matched by employers.
Whilst the UK has notoriously high taxes, certainly higher than in the US, this money will cover your healthcare, so it’s not all bad! Plus, the US-UK tax treaty will stop you from being ‘double taxed’ and compensate you via foreign tax credit (FTC) if this does occur.
Tax brackets are different, too
Unlike the US, where income tax varies per state, you’ll be charged the same amount of income tax wherever you live in the UK. That being said, the US and the UK both have progressive tax systems, where the amount of tax you pay will fluctuate with your income.
For example, if you’re earning less than £50,271 a year in the UK, you’ll be taxed at the basic rate of 20%. (Above that, you’ll fall into the higher tax bracket rate of 40% — or 45% if you earn more than £150,000 a year.)
In contrast, the US tax brackets are broken down into much smaller increments, meaning the jump from one band to the next isn’t quite so big. We do, however, have ‘non-taxable’ income in the UK, where nothing is deducted at all from anything you earn below £12,570.
How and when you’ll get paid varies slightly
You’ll be glad to know that paying your taxes is quite simple in the UK. Unless you’re self-employed, your employer will use a tax code to deduct the right amount from your wages — similar to the process in the US. If you’re self-employed, there’s no need to calculate how much you owe at the end of the year like in the States — you’ll just need to complete a self-assessment.
Our tax year also runs from 6 April to 5 April (not from December to December, as is the case in the US). But don’t be fooled — you must file for UK tax returns by 31 October if doing so by paper and 31 January if you’re doing it online. There are no extensions, and you’ll be fined if you miss your deadline!
Some other things to keep in mind
We’re sure you’ve done your research about everything else that changes when you move from the US to the UK. But just in case, we’ve put together some things to be aware of before you go…
We have pensions, not 401ks
UK pensions are drastically different from 401ks, where you choose how much of your salary goes into which investments. Instead, we have workplace pensions, which are managed by your employer. Essentially, deductions are automatically taken from your pay like taxes — so you don’t have to worry about investment rates.
It could take you a while to get a credit card
Your credit profile isn’t transferrable between the US and the UK, so most US expats will need to start from scratch to get a credit card here. Easier said than done…
Our best advice? Open an American Express credit account six months before you’re due to arrive in the UK, as this bank allows you to transfer everything over on arrival!
You’ll need to retake your driving test
Although you’re permitted to drive with a US licence in the UK for 12 months, you’ll need to gain a UK licence once that time’s up. To do so, you’ll first need to pass your theory exam before taking the practical side of the test. It may also take you a while to get used to our roads and parking spaces (they tend to be MUCH narrower than in the States).
Renting is pretty similar
Of course, you’ll need a place to crash. To rent a property in the UK, landlords must check that you need to have the right to rent — meaning you’ll need to show them your immigration documents. Other than that, renting here is not much different from the US!
Make sure you’ve got the right visa!
To live and work in the UK, you’ll need to obtain a work visa prior to arrival. The type you need depends on your occupation. It’s worth noting that you need to pay a fee to apply, and it can take a few months to hear back.
Get UK Tax Advice for US Expats
Download our free resources with UK tax advice for expats, including guides to:
- Basics of the UK Tax System
- Remittance v Arising Bases
- Available Work Reliefs
We’ve covered the most common questions our accountants get asked, so get instant access to UK tax advice for expats.
Zebra are UK-based online accountants with a range of expat tax services to help you with all your tax-related concerns. Just get in touch to find out more!
e
Hi, I am Wendy O’Dell Callaway.
I have helped hundreds of Expats with their UK taxes. This is a daunting and complex area for many, so why not let me guide you through the tax minefield that lays ahead of you?