Income Tax Rates in UK Vs US

US vs UK Income Tax Rates 2025-2026 | Complete Comparison Guide

If you’re thinking about moving between the US and UK, working across borders, or just trying to understand international tax differences, the income tax systems of these two countries will directly impact your wallet. Both use progressive taxation, but that’s where the similarities end. The structural differences run surprisingly deep, affecting everything from how your taxes get calculated to what public services your money funds. Let’s break down exactly what you’ll pay in each country and why these differences actually matter. This comparison proves especially valuable for Brits moving to the US and Americans moving to the UK.

2025-2026 Tax Rate Comparison at a Glance

Here’s the first major difference: the US federal system uses seven tax brackets from 10% to 37%, creating a gradual climb as your income rises. The UK keeps it simpler with just three main rates after the personal allowance: 20%, 40%, and 45%.

US Federal Tax Brackets for 2025 (Single Filers):

Taxable Income Range Tax Rate
$0 to $11,925 10%
$11,926 to $48,475 12%
$48,476 to $103,350 22%
$103,351 to $197,300 24%
$197,301 to $250,525 32%
$250,526 to $626,350 35%
Over $626,350 37%

UK Tax Rates for 2025-2026:

Taxable Income Range Tax Rate
£0 to £12,570 0% (Personal Allowance)
£12,571 to £50,270 20% (Basic Rate)
£50,271 to £125,140 40% (Higher Rate)
Over £125,140 45% (Additional Rate)

But here’s the catch: these headline rates don’t tell the whole story. US residents also face state income taxes, which range from 0% in Florida and Texas to 13.3% in California, plus local taxes in some areas. The UK runs a more centralised system, though Scotland operates slightly different bands and rates.


 

Real-World Tax Calculations: What You’ll Actually Pay

Tables are nice, but let’s see how these taxes actually work at different income levels. The practical differences become clearer when we run actual numbers.

Example 1: Middle-Income Earner ($75,000 / £57,560)

Take someone earning $75,000 in Texas (no state income tax) versus the UK equivalent of £57,560.

In Texas, the federal tax works out like this: first $11,925 taxed at 10% ($1,193), income from $11,926 to $48,475 at 12% ($4,386), and income from $48,476 to $75,000 at 22% ($5,835). That’s $11,414 in federal income tax. With the 2025 standard deduction of $30,000 for married filing jointly, the actual liability drops significantly on the first $45,000 of taxable income.

In the UK, this person pays nothing on the first £12,570, 20% on earnings from £12,571 to £50,270 (£7,540), and 40% on earnings from £50,271 to £57,560 (£2,916). Total: £10,456 (roughly $13,070). The UK’s higher effective rate shows up even at middle-income levels.

Example 2: High Earner in California ($150,000 / £115,120)

A California resident earning $150,000 gets hit twice. Federal tax alone runs approximately $24,865 before deductions. Add California’s top rate of 13.3% on higher income portions, and the combined marginal rate on top earnings hits 50.3%.

The UK equivalent earner at £115,120 pays £34,624 in income tax: £0 on the first £12,570, £7,540 on the basic rate band, and £25,948 on the higher rate band (40% of £64,870). This works out to a roughly 30% effective rate, significantly lower than the California scenario despite the UK’s reputation for high taxes.

Example 3: Lower-Income Worker ($35,000 / £26,880)

At lower incomes, the story flips. A US worker earning $35,000 with the standard deduction pays minimal federal tax, often just 10-12% on taxable income after deductions. Most states tack on 3-6%.

The UK worker earning £26,880 pays 0% on the first £12,570 and 20% on the remaining £14,310, totaling £2,862 ($3,578). The UK’s personal allowance of £12,570 provides solid relief, but that 20% basic rate kicks in immediately with no equivalent to the US standard deduction’s broader coverage.

Example 4: Ultra-High Earner ($500,000 / £383,746)

At the highest incomes, location becomes everything. In New York, a $500,000 earner faces the 37% federal rate plus New York’s 10.9% state rate, creating a combined marginal rate near 48% on top earnings.

The UK earner at £383,746 loses their entire personal allowance (it tapers away above £100,000 at £1 for every £2 earned) and pays 45% on all income above £125,140. Total UK income tax bill: approximately £150,893, an effective rate of 39.3%.

Social Security and National Insurance: The Hidden Tax Burden

Income tax rates only capture part of the picture. Both countries levy mandatory social insurance contributions that seriously affect take-home pay, though the systems serve different purposes and work differently.

United Kingdom: National Insurance Contributions

UK employees pay National Insurance at 10% on earnings between £12,571 and £50,270, then 2% above that. These contributions fund the NHS, state pension, and other social benefits. Someone earning £50,000 pays £3,743 annually in National Insurance on top of income tax.

Employers also contribute, and this burden has jumped recently. From April 2025, employer National Insurance rates rose from 13.8% to 15% on earnings above £5,000. This raises business payroll costs, though it doesn’t directly hit employee paychecks.

Here’s the key point: National Insurance Contributions will raise £200.6 billion in 2025-2026, representing about 16% of total government receipts. These contributions are deeply woven into the UK’s social welfare system, especially the NHS. UK residents don’t face the substantial out-of-pocket healthcare costs that are common in the US.

United States: Social Security and Medicare Taxes

US employees pay a 6.2% Social Security tax on wages up to $168,600, plus a 1.45% Medicare tax on all wages. High earners pay an additional 0.9% Medicare tax on wages exceeding $200,000 for single filers. Employers match the 6.2% and 1.45% portions, though these amounts don’t appear on employees’ paychecks.

Unlike the UK system, Social Security contributions are subject to a wage cap. Someone earning $100,000 pays $7,650 in Social Security and Medicare taxes. Someone earning $500,000 pays only $10,443 in Social Security (capped) plus $7,250 in Medicare taxes, for a total of $17,693. The lack of a cap on Medicare taxes means high earners keep contributing at 2.35% (1.45% + 0.9% additional) on earnings above $200,000.

The US-UK Totalization Agreement

For people working in both countries, double social security taxation could be devastating. Fortunately, the US-UK Totalization Agreement from 1984 prevents this exact problem. Under this treaty, workers generally contribute to only one country’s system at a time, based on where they’re primarily working and their length of stay. This treaty coordination is vital for expats and deserves careful review when planning international work arrangements.

Capital Gains and Investment Income: Different Rules for Wealth

How countries tax investment returns and capital gains significantly impacts investors, property owners, and anyone building wealth beyond earned income.

United Kingdom: Higher Rates, Fewer Breaks

UK capital gains are taxed at 18-24% for higher-rate taxpayers. The UK provides an annual tax-free allowance, but it has shrunk substantially in recent years to a small £3,000 per person.

Dividend income gets some preferential treatment but still faces significant taxation. Basic-rate taxpayers pay 8.75% on dividends, higher-rate taxpayers pay 33.75%, and additional-rate taxpayers pay 39.35%. There’s a £500 dividend allowance, after which dividends are taxed at higher rates.

United States: Preferential Long-Term Rates

The US tax code strongly favours long-term investment through preferential capital gains rates. Qualified long-term capital gains and dividends are taxed at 0%, 15%, or 20% depending on overall income, substantially lower than ordinary income rates. Most middle and upper-middle-class investors pay the 15% rate.

Short-term gains (assets held less than one year) get taxed as ordinary income at rates up to 37%, incentivising long-term investing. This creates a dramatically different investment landscape compared to the UK, where the holding period distinction matters less.

Practical Impact on Investors

Consider an investor who sells stock with a $100,000 gain after holding it for 2 years. In the US, most would pay $15,000 in federal tax (15% rate) plus possible state taxes. In the UK, a higher-rate taxpayer would pay £20,000 (20% rate). For substantial investors, these differences compound significantly over time.

Corporate Taxation: Business Location Matters

For entrepreneurs and business owners, corporate tax structures influence where to establish and operate businesses.

The UK applies a 25% corporation tax rate on profits above £250,000, with a 19% rate for smaller companies with profits below £50,000 and a tapered rate in between. This represents an increase from the previous 19% flat rate. Had the UK maintained the 19% rate, it would have ranked 4th in OECD corporate tax competitiveness.

The US federal corporate tax rate is 21%, but states add their own corporate taxes, ranging from 0% to nearly 12%. This creates combined rates that can exceed 25-27% in high-tax states, though many businesses benefit from various deductions and credits. The fragmented state-level system adds complexity but also provides options for tax-efficient business structuring.

The New UK Foreign Income and Gains Regime

Starting April 2025, the UK introduced a significant change for new residents through the Foreign Income and Gains (FIG) regime. This system allows qualifying new UK residents to shield foreign income and gains from UK taxation for their first four years of residence, replacing the previous remittance basis rules.

This regime specifically benefits high-net-worth individuals and those with substantial foreign income sources who are relocating to the UK. During the four-year period, only UK-source income is taxable, while foreign investments, business income, and capital gains remain outside the UK tax net if kept offshore. After four years, worldwide taxation applies unless the individual leaves the UK.

For Americans moving to the UK, this creates complex interactions with US citizenship-based taxation. While the FIG regime may shield income from UK tax, US citizens must still report and pay US taxes on worldwide income. Careful planning and professional advice become essential to optimise tax positions under both regimes.

Tax Burden in Global Context

Understanding how UK and US taxation compares globally provides a useful perspective. UK tax revenue stood at 33.5% of GDP in 2021, below the OECD average of 34.1%. However, under current government plans, UK tax revenue is forecast to reach 37.7% of GDP by 2027-28, placing it above OECD averages.

The US maintains a notably lower overall tax burden, though the mix of federal and state taxation complicates precise comparisons. The US ranks considerably higher than the UK in international tax competitiveness indices, with the US ranking 15th while the UK ranks 32nd in the OECD’s International Tax Competitiveness Index.

This positioning reflects not just tax rates but also system complexity, compliance burdens, and the effectiveness of tax structures to minimise economic distortion. The UK’s consumption tax efficiency is particularly weak, ranking 33rd among OECD countries.

Deductions, Credits, and Tax Relief Mechanisms

Both countries offer various ways to reduce tax liability, though the approaches differ substantially.

United States: Extensive Deduction System

The US tax system centres on the standard deduction, which for 2025 reaches $30,000 for married couples filing jointly. This substantial deduction shields a large portion of income from taxation for most families. Alternatively, taxpayers can itemise deductions for mortgage interest, state and local taxes (capped at $10,000), charitable contributions, and medical expenses.

Tax credits provide additional relief. The Earned Income Tax Credit (EITC) for low-to-moderate income workers can reach up to $8,046 for families with three or more children in 2025, with income limits up to $68,675 for married couples filing jointly. The Child Tax Credit, retirement savings credits, and education credits further reduce liability for qualifying taxpayers.

For 2025, taxpayers age 65 or older receive an additional $6,000 deduction per qualified individual (available 2025-2028) for those with adjusted gross income below $75,000 (single) or $150,000 (joint), with phase-outs for higher earners.

United Kingdom: Simpler Allowance System

The UK operates with a more straightforward allowance system. The £12,570 personal allowance provides tax-free income for most residents. Unlike the US standard deduction, this allowance doesn’t increase for married couples or families.

Additional allowances include a £1,000 tax-free interest allowance for basic-rate taxpayers (£500 for higher-rate), and £500 of dividend income earned tax-free regardless of other income. Up to £5,000 of savings interest may be tax-free if non-savings income is below £5,000.

Registered blind individuals receive an additional £3,070 tax-free allowance, transferable to a spouse if not fully used. The Marriage Allowance allows the transfer of £1,260 of personal allowance to a spouse, though this only helps couples where one partner doesn’t fully use their allowance.

Practical Considerations for Cross-Border Individuals

For those navigating both tax systems, several practical elements become critical. The US-UK tax treaty prevents double taxation on most income types, but determining which country has primary taxing rights requires careful analysis of residency rules, income sources, and treaty provisions.

Americans living in the UK must continue filing US tax returns regardless of where they reside, due to citizenship-based taxation. The Foreign Earned Income Exclusion allows excluding up to $130,000 in foreign earned income, while foreign tax credits offset UK taxes paid against US liability. However, these mechanisms require detailed reporting and careful coordination.

If you’re receiving US income while UK resident, you may encounter US withholding tax of up to 30%. Completing Form W8-BEN as an individual or Form W8-BEN-E as a UK company can reduce or eliminate this withholding under treaty provisions. You may need to obtain a US tax ID (ITIN) to claim treaty benefits.

For UK residents working in or moving to the US, understanding state tax implications becomes essential. Choosing between Florida (no state tax) and California (13.3% top rate) can mean tens of thousands of dollars in annual tax differences for high earners.

Which System Results in Lower Taxes?

The answer depends heavily on individual circumstances. For high earners above $200,000 (£153,500), US residents in no-tax or low-tax states typically enjoy lower total tax burdens, especially when factoring in the preferential treatment of investment income. Someone earning $300,000 in Texas or Florida pays substantially less than a UK counterpart earning £230,000.

But in high-tax US states like California or New York, the combined federal and state burden can exceed UK rates at similar income levels. A $300,000 earner in California faces marginal rates exceeding 45%, similar to, or even higher than, UK rates.

For middle-income earners between $50,000 and $ 100,000 (£38,400 and £ 76,800), the comparison gets nuanced. UK taxpayers face higher headline rates but benefit from NHS coverage through their taxes, while US residents pay lower income taxes but face substantial healthcare premiums and out-of-pocket medical costs not reflected in tax calculations.

Lower-income workers often fare better in the UK due to the broader social safety net and NHS access, though the 20% tax rate kicks in earlier than equivalent US tax brackets. The US Earned Income Tax Credit can provide substantial benefits for low-wage workers with children, potentially resulting in negative effective tax rates (receiving more back than paid in).

Investment-focused individuals generally prefer the US system due to its 0-20% long-term capital gains rates compared to the UK’s 18-24%, as well as the numerous tax-advantaged retirement accounts available.

Making the Right Tax Planning Decisions

Understanding these differences enables more informed financial planning and location decisions. Whether you’re a British citizen moving to the United States or an American moving to the United Kingdom, the tax implications deserve careful consideration alongside other lifestyle and career factors.

The systems differ not just in rates but in fundamental structure, what taxes fund, and how they interact with the overall cost of living. UK taxes provide comprehensive healthcare and broader social benefits, while US taxes (especially at the federal level) are lower but leave more costs to private payment. Neither system is objectively “better,” but understanding the differences lets you optimise your situation and avoid costly surprises.

For complex cross-border situations, particularly those involving business ownership, substantial investment income, or high earnings, professional guidance becomes invaluable. The interaction of two tax systems, treaty provisions, and state-level rules creates complexity that rewards expert navigation.

About the Author — Simon Misiewicz FCCA ATT EA MBA

Simon Misiewicz is the Founder and Director of Optimise Accountants Limited, a dual-qualified UK–US tax advisory firm specialising in cross-border planning for individuals, families, and professional advisers.

As a Chartered Certified Accountant (FCCA), Chartered Tax Adviser (ATT), IRS Enrolled Agent (EA), Certified Acceptance Agent (CAA), and IRS-Approved CE/CPD Educator, Simon uniquely bridges both UK and US tax systems—helping American and British clients stay compliant while reducing exposure to double taxation, unnecessary filings, and lost reliefs.

Simon’s expertise covers:

Through Optimise Accountants and InternationalTaxesAdvice.com, Simon provides strategic, transparent, and data-driven solutions for Americans living in the UK and Britons investing or residing in the US—ensuring clients remain fully compliant while legally minimising global tax burdens.

“My mission is to make international taxation understandable and manageable. Americans and Britons shouldn’t fear compliance—they should use it to their advantage.” – Simon Misiewicz