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 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)
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.
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.
- compare and contrast: UK and US tax burdens
- living on one income – the single life
- foreign family finance