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Are taxes higher in the UK or the US?

  • 3 min read
  • 25 Oct 2022
Are taxes higher in the UK or US? - TaxScouts

Let’s face it, there’s always competition between the UK and US. Just last month the UK and US went head to head for the Davis Cup. This time, it’s the battle of the highest taxes! So, are taxes higher in the UK or the US? 

Does the US have the same types of taxes as the UK?

Well, both the UK and US have plenty of taxes. The main types in the UK are:

Taxes in the US are broken down into these three buckets:

  • Tax on what you earn
  • Tax on what you own
  • Tax on what you buy

Pretty simple, really!

Is income tax higher in the UK or US?

How about a quick comparison? 👀

UK 🇬🇧

BandTaxable IncomeTax Rate
Personal allowanceUp to £12,5700%
Basic rate£12,571 – £50,27020%
Higher rate£50, 271 – £150,00040%
Additional rateOver £150,00045%

US 🇺🇲

Taxable IncomeTax Rate
Up to $10,27510%
$10,276 – $41,77512%
$41,776 – $89,07522%
$89,076 – $170,05024%
$170,051 – $215,95032%
$215,951 – $539,90035%
$539,901 or more37%

Safe to say the income tax rates in the US are significantly less than the UK 🫠

Does this mean I’ll be better off in the US?

Not necessarily! All it means is that the income tax rates are lower than the UK. ‘Better off’ is a strong statement. 

Before applying for that green card, you may want to consider where and how higher taxes in the UK might just be more beneficial:

  • A free healthcare system compared to the costly healthcare system in the US
  • More social security i.e benefits and cost of living help
  • Housing aid (the US has over 200,000 more homeless people than the UK)
  • A preferable state pension programme 

So will you be better off? We can’t give an exact (or unbiased) answer to that, but we can suggest considering whether you’ll be happier with higher wages and perhaps a cut to the quality of social security programmes.

Are any other types of tax lower in the US?

Now we know that Americans who earn over £500,000 still only pay 37% tax, let’s have a look at some other types of tax! 

Inheritance tax:

The US is made up of 50 states. Currently, there are only 6 states in the US where inheritance tax is a thing.

Estate tax is more common across the US but only applies to estates worth over $12.06 million. The standard rate is 40% but only 17 states even bother to enforce estate tax! 🤯

On the other hand, everyone in the UK except the King has to pay inheritance tax at a rate of 40% if the value of the received estate is above £325,000.

Anyone else from team UK secretly switching over to team US? 🙈

Sales tax:

This is a tax in the US that’s paid by consumers. Sales tax is imposed on retail goods such as food and clothes. Rates differ in every state but the average is around 5%. Sales tax is collected once at the final purchase, by the final customer.

So let’s compare this to a similar tax in the UK – VAT:

  • VAT stands for Value Added Tax
  • The standard rate of VAT is 20%
  • It isn’t exactly the same as sales tax but it’s not very far off either
  • VAT is collected multiple times during the production of a product 

Confused? Let’s roll out the example! 🕺

Sloane purchases a new television for $400 in Mississippi where the sales tax is 7%:

(400 + 7% = 428) 🤓

 So Sloane would have to pay $28 in sales tax. 

Now, in the UK, Paul pops into PC World to buy a new printer for £100. Because the standard rate of VAT is 20%, Paul will pay an extra £20. 

Just like all other taxes, when a business charges VAT or on a sale, they’re simply collecting on behalf of HMRC.

So there we have it. We’ll let you decide whether you are team UK tax 🇬🇧 or team US tax 🇺🇲 … or none! 😝

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