UK vs US taxes: the same salary, two very different bills

Figures relate to tax year 2026 (US) · 2026-27 (UK)

People ask which country taxes harder as if there were one answer. There is not, because the two systems tax different things at different points in your life.

This guide sets UK vs US taxes side by side for 2026, band by band and tax by tax. It uses the published figures for the British 2026-27 tax year and the American 2026 tax year.

It also explains the part most comparisons leave out. An American living in Britain does not choose between the two. In practice, they deal with both every year.

Key takeaways

• Britain has fewer income tax bands, but its 40% rate starts at £50,271.
• America has seven federal brackets, and its 22% rate starts at $50,401 for a single filer in 2026.
• Most states add their own income tax on top, and a handful charge none.
• UK employees pay 8% national insurance; US employees pay 7.65% in Social Security and Medicare.
• Britain charges 20% VAT inside the price; America has no federal sales tax, so states set it.
• Inheritance tax bites at £325,000 in Britain; the US estate exclusion is $15,000,000 for 2026.
• UK vs US taxes is not a choice for Americans abroad, because America taxes its citizens everywhere.

What is the short answer on UK vs US taxes?

On salary alone, Britain usually takes a little more from middle and upper earners, mainly because its 40% band starts early. However, America often catches up through state income tax, sales tax and health costs. So the honest answer is that the total depends on your income, your state and how you spend.

A comparison of headline rates misleads in both directions. For example, the top British rate is 45%, while the top federal rate is 37%. But a Californian high earner adds a state rate that the British earner never sees.

So the useful comparison is not rate against rate. It is the whole bill against the whole bill, for a real person with a real salary.

How do the income tax bands compare in 2026?

Britain has a £12,570 personal allowance, then 20% to £50,270, 40% to £125,140 and 45% above. America gives a single filer a $16,100 standard deduction for 2026, then runs seven brackets from 10% to 37%. As a result, the American system climbs more slowly through the middle.

According to GOV.UK, the British bands above apply in England, Wales and Northern Ireland. Scotland sets its own bands, with more steps. Meanwhile, the American figures come from IRS guidance on the 2026 inflation adjustments.

Why does the 60% band matter so much?

Because Britain withdraws the personal allowance by £1 for every £2 of income above £100,000. Every extra pound in that range costs 40p in tax and also removes 50p of allowance, which is then taxed at 40%. So the true marginal rate between £100,000 and £125,140 is 60%.

America has nothing quite like it at the federal level. Instead, its brackets simply step up. A single filer earning $110,000 moves from 22% to 24% and that is all.

In practice, this band shapes behaviour. Many British earners near £100,000 pay extra into a pension to stay below it. An American in Britain should check how that pension contribution looks on the US return before relying on it.

Payroll taxes: national insurance against FICA

A British employee pays class 1 national insurance at 8% on weekly pay between £242 and £967 in 2026-27, then 2% above that. Notably, there is no cap, so the 2% runs on every pound.

An American employee pays 6.2% Social Security and 1.45% Medicare, a combined 7.65%. However, the Social Security part stops at an annual wage ceiling, while Medicare does not. High earners also pay an extra 0.9% Medicare tax above a set threshold.

So at modest salaries the two payroll charges are close. Above the American ceiling the US charge falls sharply, while the British 2% keeps running. Both countries also charge employers separately, which never shows on your payslip.

How are dividends and savings taxed?

Britain taxes dividends above a £500 allowance at 10.75%, 35.75% or 39.35% from 6 April 2026. America taxes qualified dividends at 0%, 15% or 20%, with the 0% band reaching $49,450 of taxable income for a single filer in 2026. So American investment income is usually taxed far more lightly.

Savings interest works differently again. Britain gives a personal savings allowance and then taxes interest at your income rate. Notably, savings rates rise by two points from April 2027. America taxes interest as ordinary income with no allowance at all.

Then there is the ISA. Britain shelters up to £20,000 a year from tax entirely. America does not recognise the shelter, so an American's ISA interest and gains stay taxable on the US return.

How do capital gains compare?

Britain charges 18% on gains within the basic band and 24% above it, after a £3,000 annual exempt amount. America charges long-term gains at 0%, 15% or 20% and adds a 3.8% net investment income tax for higher earners. Short-term gains are taxed as ordinary income there.

Then the two systems split on your home. Britain usually exempts the gain on a main residence in full. America excludes up to $250,000 of gain, or $500,000 for a married couple filing jointly, and taxes the rest.

Currency adds a twist. Because America measures gains in dollars, a British home can show a gain there even when its sterling price never moved.

Property and local taxes

British homeowners pay council tax, a banded charge set by the local council. Buyers also pay stamp duty land tax in England when they buy. By contrast, American owners pay property tax as a percentage of assessed value, which varies widely by county.

A US homeowner can often deduct mortgage interest and some property tax when itemising. A British homeowner gets no income tax relief on a home loan at all. Meanwhile, British landlords face their own changes, with separate property income rates of 22%, 42% and 47% from April 2027.

Sales tax against VAT

Britain charges VAT at a standard 20%, built into the shelf price. America has no federal sales tax. Instead, states and cities add their own rate at the till, and a few states charge none.

So everyday spending feels cheaper in America only partly because of tax. The British shopper pays a higher consumption tax on most goods. However, food, children's clothes and books are zero rated in Britain, which softens the effect for families.

Inheritance and estate tax

Britain charges inheritance tax at 40% on an estate above £325,000, with extra relief for a home left to children. America's estate tax also tops out at 40%, but only above a basic exclusion of $15,000,000 for deaths in 2026. So far fewer American estates pay anything.

Gifts follow the same pattern. America lets you give $19,000 a year to anyone free of reporting in 2026. Britain treats most gifts as free only if you survive them by seven years.

A married couple with mixed nationality needs care. The US marital deduction does not apply in full to a spouse who is not a citizen, though the annual exclusion for such a spouse is $194,000 in 2026.

What about state income tax?

Most American states levy their own income tax on top of the federal bill, at rates from low single figures to over 10%. A few, such as Texas and Florida, charge none. Britain has no equivalent layer, apart from the Scottish bands, so this is often what tips the comparison.

For an American who has moved to Britain, state tax usually stops. However, some states keep treating a former resident as resident if ties remain. A driving licence, a home or a vote can all keep that link alive.

How does filing compare between the two countries?

Most British employees never file a return, because PAYE settles their tax through payroll. America expects almost everyone above a filing threshold to file every year. So the American system puts more paperwork on the individual, even when the tax itself is similar.

The tax years differ too. Britain runs from 6 April to 5 April, and the online return is due by 31 January. America uses the calendar year, with returns due on 15 April and an automatic two months for citizens abroad.

Our guide to the different UK and US tax years explains how to map one onto the other.

Why can Americans abroad not choose one system?

Because America taxes its citizens on worldwide income wherever they live. An American in London is a British taxpayer through residence and an American taxpayer through citizenship. So UK vs US taxes is not a comparison for them. It is a reconciliation, done every single year.

Two tools stop the same income being taxed twice. First, the foreign earned income exclusion removes up to $132,900 of earnings from US tax for 2026. Second, the foreign tax credit lets you offset British tax against the American bill on the same income.

The treaty between the two countries then settles the harder cases, such as pensions and social security. Our guide to the US-UK tax treaty covers how it allocates taxing rights.

So which bill does an American in Britain pay?

Usually the higher of the two, line by line. Because British income tax on salary is normally higher, the foreign tax credit wipes out the American tax on earnings. Then gaps appear wherever America taxes something Britain does not, such as ISA growth or a gain on currency.

In short, you rarely pay both in full. You pay Britain first, then America collects any shortfall on items it sees differently.

A worked example

Take an illustrative example of a single person earning £60,000 in England in 2026-27, with no other income. The figures are rounded and the exchange rate is set at $1.30 to £1 purely for the arithmetic.

1. UK income tax: 20% on £37,700 is £7,540, plus 40% on £9,730 is £3,892, giving £11,432.
2. UK national insurance: 8% on £37,700 is £3,016, plus 2% on £9,730 is about £195, giving roughly £3,211.
3. Total British deductions: about £14,643, or roughly 24% of salary.
4. US view of the same salary: £60,000 at $1.30 is $78,000 of foreign earned income.
5. The exclusion covers all $78,000 for 2026, so the US income tax on it is nil.
6. Result of this UK vs US taxes comparison: the British bill stands and nothing more is due to America on the salary.

Now place the same person in Texas on $78,000. After the $16,100 standard deduction, federal tax comes to about $8,330. Add 7.65% payroll tax of about $5,970, and the total is close to $14,300.

The British £14,643 converts to about $19,040, so Britain takes more here. However, a state income tax and health premiums would narrow that gap.

Where do the systems disagree most?

Pensions, tax-free wrappers and funds cause most of the friction. Britain shelters pensions and ISAs, while America shelters some pensions under the treaty but not ISAs. British funds also count as passive foreign investment companies for an American, which brings punitive rules.

Our clients most often meet this through an ISA opened years earlier on a bank's advice. The British side is tax free. The American side can be expensive and needs a separate form for each fund.

How do pensions compare?

Both countries give tax relief on pension saving and tax the money when it comes out. Britain adds a tax-free lump sum of usually 25%, capped at £268,275 under the lump sum allowance. America has no general tax-free lump sum, so a withdrawal from a 401(k) or IRA is normally taxed as ordinary income.

The treaty bridges much of the gap for people who move. For example, growth inside a British pension is not usually taxed by America year by year. However, the British tax-free lump sum may not be tax free on the American return, so timing a withdrawal needs care.

Common mistakes and penalties when comparing the two

The most common mistake is assuming British tax paid means American filing is optional. It is not, and late American returns can carry penalties even where no tax is due. Similarly, many people forget the separate report of foreign bank accounts, which has its own penalties.

• Comparing headline rates instead of total bills.
• Ignoring state income tax when moving to America.
• Treating an ISA as tax free on the American return.
• Missing the 60% band when planning a pay rise.
• Assuming the exclusion also covers dividends and rent, which it does not.
• Skipping the American return because the UK vs US taxes credit leaves nothing to pay.

Steps to compare your own position

1. List every income source for the year, in pounds and dollars.
2. Work out the British tax on each source using the 2026-27 bands.
3. Work out the American tax on the same sources using the 2026 brackets.
4. Apply the exclusion or the foreign tax credit to earned income.
5. Flag the items one country taxes and the other does not.
6. Add state tax, payroll tax and local taxes to finish your UK vs US taxes picture.

How US UK Tax Accountants helps

We prepare both returns together, so each figure is worked out once and used in both countries. That way the credit, the exclusion and the treaty are applied in the order that costs you least. Our US federal return service covers the American side in full.

We see the same pattern every season. People move with a clear idea of the British bill and no idea of the American one. A short review before the first year ends usually settles it.

If you are weighing a move or a job offer, contact us and we will set out both bills for your own figures.

This article is general information, not personal tax advice. Rates and thresholds change each year, so check the current figures before you act.

Last reviewed: 11 November 2026.