Personal Taxes in the UK: An Overview
9 October 2023
Understanding the UK's personal tax system is essential for residents and non-residents as well as for individuals with different domicile statuses. We invite you to check a comprehensive overview of personal taxes in the UK covering topics such as income tax, domicile status, tax declaration filing and more.
Residents: UK residents are subject to income tax on their worldwide income. The UK uses a progressive income tax system with various tax bands and rates:
• 20% - on income from £0 to £37,700
• 40% - on income from £37,701 to £150,000
• 45% - on income over £150,001
Dividend income is subject to rates ranging from 8.75% to 39.35%, depending on the amount of dividends. Certain types of income have tax-free thresholds.
Non-Residents: Non-residents are typically subject to UK income tax only on their UK-source income, such as rental income or income from a UK job. Non-residents do not receive the same tax-free personal allowance as residents.
Domicile determines an individual's permanent home country for tax purposes. UK residents may be "domiciled" or "non-domiciled."
Domiciled (Deemed Dom): UK-domiciled individuals are subject to UK tax on their worldwide income. They may also be subject to Inheritance Tax (IHT) on their worldwide assets.
Non-Domiciled (Non-Dom): Non-domiciled individuals have the option to be taxed only on their UK income and gains, while foreign income and gains are typically not taxed unless they are remitted to the UK. Non-Doms can also claim the remittance basis.
Residents: UK residents are required to file a Self-Assessment tax return with HM Revenue & Customs (HMRC) if they meet certain criteria, such as having income from self-employment, rental properties, or other sources.
Non-Residents: Non-residents must also file a Self-Assessment tax return if they have UK income or gains that exceed the relevant threshold. The deadline for filing tax returns and making payments is typically in January.
National Insurance Contributions (NICs):
NICs fund the UK's social security system, providing benefits such as healthcare and state pensions.
Both residents and non-residents who work in the UK may be liable to pay NICs, depending on their income and employment status.
Inheritance Tax (IHT):
IHT is levied on the value of an individual's estate when they pass away. UK-domiciled individuals are subject to IHT on their worldwide assets, while non-doms may have a different IHT liability.
Navigating the UK's personal tax system requires a clear understanding of income tax rates, domicile status, tax declaration filing requirements, and other considerations. Residents and non-residents should be aware of their tax obligations and opportunities for tax planning. Seeking advice from a qualified tax advisor or accountant can be invaluable in ensuring compliance with UK tax laws and optimizing one's tax position. It's also important to stay updated on tax law changes, as rates and regulations may evolve over time.
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