Taxes in the UK: What to pay and how to pay it

Discover all you need to know about the UK tax system. This article will help you understand what taxes you’ll pay and how to pay those taxes in the UK.

Ellie

5 minute read

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25 Jul 2024

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Living

As an international, it can be tricky to understand the tax system of a new country. After moving to the UK, you’ll need to wrap your head around the UK tax system pretty quickly to ensure you’re paying the correct amount of tax in the right way. To help you understand taxes in the UK, we’ll walk you through:

• Who pays taxes in the UK
• What taxes you’ll pay in the UK
• How to pay taxes in the UK
• What countries have dual tax agreements with the UK

Anyone who earns an income in the UK will most likely have to pay the UK income tax. How much you’re taxed depends on your residency status.

• Residents of the UK are taxed based on their worldwide earnings
• Non-residents of the UK are only taxed on income earned in the UK.

You’re considered a UK tax resident if you spend 183 or more days of the year in the UK. To pay your taxes in the UK, you’ll need to get your tax identification number (TIN). However, many residents will use their National Insurance Number (NINO) as a tax identification number. You can get your NINO online, you’ll just need to have:

• A passport
• Your biometric residence permit (BRP)
• A photo of yourself holding your passport
• Photos of your documents

Living in the UK as an international, there’re a number of taxes you’ll have to pay. Let’s look at the most common taxes paid by expats in the UK.

Income tax in the UK

Residents of the UK pay tax on their worldwide income, while non-residents pay tax only on income they earn in the UK. Both residents and non-residents pay income tax at the same rate. Under the Pay As You Earn (PAYE) system, income tax is typically taken from workers' salaries before it reaches their bank accounts. The majority of people will pay their taxes via PAYE.

Income tax in the UK is progressive, which means the more you earn, the higher tax you’ll pay. It also varies somewhat depending on where you live in the UK.

• If you live in England, Wales or Northern Ireland, you’ll pay between 20% and 45% in income tax

• If you live in Scotland, you’ll pay between 19% and 48% in income tax

In the UK, you’ll have a personal allowance of up to £12,570, meaning the first £12,570 of your income is not taxed.

Self-employed income tax in the UK

If you’re not paying tax via PAYE or have an additional income on top of your main job, you may need to complete a self-assessment to pay your income taxes.

You’ll need to pay your taxes via a self-assessment tax return if:

• You’re self-employed
• You’ve earned over £1,000 from self-employment on top of your salaried job
• Your taxable income is over £150,000
• You’ve had to pay capital gains tax after selling something that increased in value

The UK government has created a useful tool to help you figure out if you need to submit a self-assessment tax return.

National insurance contributions (NIC) in the UK

On top of income tax, workers may also have to pay national insurance contributions (NIC). These contributions are taken from your salary before it reaches your bank and are used to fund benefits and pensions. As an employee, you’ll pay up to 8% of your salary in NIC if you earn between £12,571 and £50,270. You’ll pay 2% NIC on earnings above £50,270.

If you’re self-employed you’ll need to pay 6% NIC on profits of £12,570 to £50,270 and a 2% NIC on profits over £50,270.

Capital gains tax in the UK

You may need to pay capital gains tax in the UK if you sell, give away, swap or receive compensation for something that has increased in value since you received it. You’ll only need to pay tax on the profit you made in the sale. Some examples of what you may have to pay capital gains tax on include:

• Personal possessions worth more than £6,000 (aside from your vehicle)
• Property that is not your main home
• Your main home is you’ve rented it out, used it for business or if it’s especially big
• Business assets

You may also need to pay capital gains tax on crypto assets. You’ll only pay capital gains tax on profits above the annual tax-free allowance of £3,000.

You don’t have to pay capital gains tax on gifts to your spouse, civil partner, a charity or any bonds, lottery or bet winnings.

How much you’ll pay in capital gains tax depends on your income tax rate.

• If your combined taxable income and taxable gain still fall within the basic income bracket, you’ll pay 10% on most gains and 18% on residential properties.

• If your combined taxable income and taxable gain fall above the basic income tax bracket, you’ll pay 20% on gains above the basic tax rate and 24% on residential gains above the basic tax rate.

You must document and pay your capital gains tax within 60 days of receiving the profits.

Council tax in the UK

Council taxes in the UK fund local government services like street cleaning, road maintenance, bin collections and other local services like libraries and parks. The amount of council tax you pay each year will depend on the area you live in and the value of the property you live in.

Even if you’re renting a property or a room, you’ll have to pay council tax. Council tax is paid per household, so if you rent a room, you’ll split the cost with your housemates. Council tax in the UK will typically cost between £1,000 and £4,000 per year. You can pay your council tax online or in person at a post office or bank.

You may be exempt from paying council tax if:

• You’re a full-time student at college or university
• You’re under 25 and receive funding from the Education and Skills Funding Agency
• You’re a student nurse
• You’re a live-in carer for someone who’s not a partner, spouse or child under 18
• You’re a diplomat

You can apply for a discount or exemption from the council tax with your local council authority.

For the majority of UK taxpayers, taxes are automatically deducted from their salary every time they’re paid. You may need to pay additional taxes such as capital gains or council tax. In that case, the payment process is very straightforward and usually outlined in the letter you receive from the government about the tax. These taxes can typically be paid online or in person at a post office, branch, or local store.

If you need to submit a self-assessment tax return, paying your taxes is a little more complex.

Paying your self-assessment tax bill in the UK

You’ll typically pay your self-assessment tax bill in 2 instalments each year. You need to have paid the first instalment for the previous tax year by January 31st, and the second instalment for the previous tax year must be paid by July 31st. You can pay these instalments online through your bank, by phone, direct debit or cheque.

If you’d prefer to pay your taxes in smaller instalments, you can set up weekly or monthly payments towards your bill by setting up a direct debit with your government sign-in. You'll still need to ensure you've paid the first half of your tax bill by January 31st and the second half by July 31st if you opt to pay in smaller instalments.

What happens if you overpay (or underpay) tax in the UK?

The tax year in the UK ends on April 5th. If you have paid too little or too much tax by this date, you’ll receive a letter from His Majesty’s Revenue and Customs (HMRC) telling you how to receive a refund or pay the additional tax you owe. You’ll receive this letter between June and December of the same year.

Double taxation treaties ensure that UK tax-paying residents don’t pay tax in two different countries. The UK holds double taxation treaties with over 130 countries.

Taxes in the UK are a pretty hands-off process for the vast majority of UK tax residents. With your income and NIC deducted automatically from your salary, you’ll rarely have to worry about how to pay your taxes and how much you need to pay. Now that you know all you need to know about the UK tax system, it's time to get started on your career in the UK!