tax
do Brits really pay more tax than Americans?
WSA adsense code -->A little while ago, I tried to estimate the differences between the US and UK tax burdens. Keen to give more accurate figures, and on the suggestion of deepali, I contacted my friend rocketc, a great personal finance blogger from middle America to compare some actual costs. Since rocketc has kids, and UK taxes are easier to work out, we’ve gone for a notional family with 2 adults, and 2 kids with one income and one SAHP. Don’t forget to check out rocketc’s matching post on the US tax burden.
Rocketc and I settled on an income of $50,000 which, using the exchange rate of £1 = $1.9074, gives an annual income in £ sterling of £26,291.76.
Child Benefit
Child benefit is paid weekly to the primary caregiver (usually the mother, in this instance it would be the stay at home parent). The rates are £18.80 for the first child and £12.55 for each subsequent child.
Total Child Benefit - £1630.20 (= $3109.44)
Income Tax, National Insurance and Tax Credits
I calculated the monthly salary is £2190.98, which gave a monthly employees NI contribution as £191.18 and similarly the monthly income tax through PAYE as £154.45. In addition with 2 children they would be entitled to Tax Credits of £105.83 per month.
Total Monthly Take Home Pay - £1951.18 (= $3271.68))
Total Tax from Pay - £2877.60 (= $5488.73)
Council Tax
For those who haven’t lived in the UK, council tax is charged by the local authority and is property based. Unlike a property tax, it is not charged to the owner, but to the people living in the property. I’ve assumed a middle Band D property for this family which would probably be a 3 bed house, and picked my own area which is representative of an urban metropolitan area.
Total Council Tax - £1212.94 (= $2313.56))
TV
To watch TV you need a TV licence, annual charge is £139.50
Total TV Licence - £139.50 (= $266.08)
Cars
Since I don’t have a car, but a family living outside of London almost certainly does, I’ve used car fuel data for a Fiat Bravo to estimate taxes paid on a car.
Fuel prices have gone up since the data was compiled, so I’ve assumed that they will average £1.20 per litre over the year, giving a total fuel price of £1767.74. A combination of fuel duty and VAT means that the tax component of that is £1004.99. Vehicle excise duty is dependant on emissions. The Fiat Bravo has carbon emissions of 158g/km and so falls into Band D which costs £145 per year.
Total Tax on Car - £1149.99 (= $2193.49)
Purchases
We agreed that 40% of gross income was the right amount spent on purchases, but then I remembered that VAT is charged at different rates on fuel (7.5%), food and other non-luxury goods (0%) and luxuries (17.5%). I’ve used the average cost of heating a 3 bed house using gas with a condensing boiler (I have one) is £728 per annum which gives VAT of £50.79 and an electricity bill of £600 per annum, which gives VAT of £41.86. Food costs I’ve suggested would be £100 per week, of which approximately 40% is 0 rated for VAT which means that the VAT on food per week is £8.94. Other purchases all have full VAT and the tax charged would be £594.06.
Total Purchase VAT - £1151.59 (= $2196.54)
Just to show you that this is a fairly consistent family, if they are saving 10% of their gross income, the above figures leave them with a mortgage payment of up to £720 and a total mortgage of about £117k which, assuming at least a 10% deposit, is about right for the purchase of a 3 bed house in my city within the last two or three years.
Total Taxes
In the UK, the net direct taxation paid directly to government agencies works out to be £2744.84 (= $5235.51), a total of income tax, national insurance, council tax, vehicle excise duty and tv licence, minus child benefit and tax credits.
Additional indirect taxation works out to be £2156.58 (= $4113.84), this is fuel duty and VAT.
This gives a total tax burden of £4901.42 (= $9348.97) which is 18.7% of gross income.
Check out rocketc’s post if you want to see the US tax burden. And just to plug life on the right side of the Atlantic, don’t forget that British tax covers comprehensive health care, reasonable but not generous unemployment benefits, and some retirement provision. Added to which, if you’re a British passport holder you get all the benefits of EU membership. And, just to keep it topical, you get to be the best country in the world at track cycling. 
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10 comments for “do Brits really pay more tax than Americans?”
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Great to see the breakdown. Link to Rocket needs to be fixed, however!
Just watched Gosford Park and got British countryside lust again. It’d probably be much weaker if we weren’t living in an area with no countryside. Maybe we’ll just take holidays in England.
Great post and comparison. I’ve been away longer than I realised- the TV licence is much higher than I remembered- completely worth it for Top Gear and Terry Wogan alone though!
I can’t quite figure out the VAT breakdown, but I think it might be a little lower bearing in mind children’s clothes and books are VAT free?
Wow, we’re complaining about $4 per gallon gas and you’re paying $8.47 per gallon! How do you handle it? I’ll assume you just drive a heck of a lot less than we do.
Great, very interesting! Thanks!
One tax category that was not included (perhaps not considered “typical”), is tax paid on interest/dividends.
And I’m curious about a followup on expenses now.
@Mrs. Micah:
Yes you should take holidays in England, I’ll help you with an itinerary. But you’ll have to come to my local for a drink.
@Looby:
Yes, the tv licence is more than I thought as well. For some reason, in my head it’s about £100 - I have it on direct debit, and it’s in my budget at the right amount, but still surprises me every time.
@PK:
Yes, fuel is expensive, and it means that we drive less (typical mileage is 12,000 per year?) and that we spend a lot of money on it. It also means that goods in general are expensive. Of course, everyone is in the same boat so we’re used to it.
@deepali:
Tax on interest is 20% (40% if your income is more than £40k-ish), although there are tax-free savings accounts (Cash ISAs) in which you can save up to £3,600 per year. Tax on dividends is 10% (or 32.5% if you earn more than £40k-ish). We have a progressive tax system in the UK (as most places do) and I think higher earners pay quite a bit more tax in the UK than they would in the US.
I’ve been to England- great country.
Gas may be more expensive there- but you have public transportation options- London’s tube, etc. A lot of these are not available in the US- due to the sheer size of this country among other things.
Americans always say that
. When I’ve travelled in the States I’ve always used public transport, so I know that it works in the cities. The sheer size of America compared to the UK does make significant differences in mileage though.
Public transport in the megapolises here in the U.S. (e.g. NYC) is great.
Away from those size cities it’s a lot less appealing.
Here in my city of barely 200,000 you have a bus system that has radial routes from a center-city transfer point.
If where you start from is not on the same bus route as where you want to go, you have a long ride to the downtown bus station, a hefty wait for the next bus on a different route, and another long ride to your destination - a 15 minute car ride can take 1 hour via the bus.
And service ends on almost all routes at 5:30 pm.