The UK tax system

The UK tax year runs from 6 April to 5 April; the current one is 2026/27. The authority is HMRC, His Majesty's Revenue and Customs, tax office and customs in one. Employees barely notice it: through PAYE the employer takes income tax and National Insurance straight from pay. Anyone with rental income, foreign income, dividends over £10,000 or taxable gains files a Self Assessment return as well.

Whether the UK taxes you in full turns on one test: the statutory residence test, a set of rules built on days and ties, which we take apart in our piece on the statutory residence test. If you are resident, you are taxed in principle on your worldwide income. If you arrive after ten years away, you can keep your foreign income out of UK tax for four years under the FIG regime, the successor to the old non-dom status.

One British quirk catches newcomers out again and again: Scotland sets its own income tax rates on earnings, pensions and rents, with six bands from 19 to 48%. Interest and dividends are taxed at UK rates in Scotland too. And the tax on buying property is called Stamp Duty Land Tax in England and Northern Ireland, LBTT in Scotland and Land Transaction Tax in Wales.

The honest answer: it depends on how you earn your money. On earnings, the UK's 40% rate starts at £50,271 and the 45% top rate at £125,140, earlier than in many European countries; on the other hand there is no church tax, and employee National Insurance is 8% up to £967 a week and 2% above. For high salaries the UK is rarely a tax-saving plan.

On investment income the comparison swings with your other income. Many European countries tax interest and dividends at a flat rate; the UK taxes them in bands on top of your other income, so a higher-rate taxpayer pays 35.75% on dividends and 40% on interest. In return, everything inside an ISA is tax-free, and you can pay in £20,000 a year.

The real lever lies elsewhere: timing. Arrive after ten years outside the UK and you pay no UK tax on foreign income and gains for four years. Stay long and, after ten out of twenty years, your worldwide estate falls into UK inheritance tax at 40%. How double taxation between the UK and your home country is avoided is settled by the treaties; the principles are in our piece on the UK's tax treaties.

Income tax: 20% from £12,571 to £50,270, 40% up to £125,140, 45% above. Between £100,000 and £125,140 the personal allowance melts away, so the effective rate in that band is steep. The allowance and the basic rate limit are frozen until 2030/31 by the Finance Act 2026.

National Insurance: employees pay 8% from £242 a week and 2% above £967 a week. The self-employed pay Class 4 on profits over £12,570.

Capital gains tax: since 30 October 2024 the rates are 18% within the basic rate band and 24% above it, for property and shares alike. The annual exempt amount is £3,000. What the increases mean for you is in our piece on UK capital gains tax.

Inheritance tax: 40% on the estate above £325,000, plus up to £175,000 more when the family home passes to children or grandchildren. Since April 2025 residence decides, not domicile.

Stamp Duty Land Tax: on buying a home in England or Northern Ireland, banded from 0 to 12%, with a 5 percentage point surcharge for an additional property and 2 percentage points for buyers who are not UK resident.

Council tax: the local tax on every home, by valuation band and council. If you live alone, you get 25% off.