If you’re trying to figure out your budget before moving abroad, one of the things you need to find out is how much tax you’re going to pay on your salary. Every country’s tax rules are different, and at times they can get quite complex. So in the first of a periodic series of blog posts about how much tax you pay in some of the most popular destinations among immigrants, we explore the rules in the United Kingdom.
Let’s start with the amount you don’t have to pay income tax on, known as the Personal Allowance. In most cases, the first £11,500 of your income is tax- free. However, your allowance is tapered by £1 for every £2 you earn over £100,000. So if you make £123,000 or more per year, you don’t get a personal allowance and you pay tax on your full salary.
Income tax is broken into four bands based on your annual salary. If you earn less than £11,500, you don’t pay any tax (as we explained above). The basic rate of 20% is charged on income between £11,500 and £45,000 and the higher rate of 40% from £45,000 to £150,000. If you’re fortunate enough to earn over £150,000, you pay the additional rate of 45% on the excess. To make life easier, your employer deducts your tax liability from your salary before paying you.
To put this into context, here’s an example of how much tax you pay if you make £50,000 per year:
Tax- free allowance: £11,500
Taxable income: £38,500
Basic rate: £6,700
Higher rate: £2,000
Total income tax: £8,700
You also have to pay National Insurance (NI), which covers a range of benefits such as state pension and maternity leave, based on your weekly earnings. As with income tax, your employer deducts this from your salary. There’s no NI due on the first £157 you earn per week, and then you pay 12% up to £866 and 2% on any income above that amount.
However, some countries, including the Philippines, have a bilateral agreement with the UK, which means their citizens don’t need to pay NI. You can find the full list here.
Here’s breakdown of how much NI you pay if you’re earning £1,000 per week:
Weekly income up to £157: £0
12% from £157 to £866 (£709): £80.60
2% above £866 (£134): £3.40
Total NI per week: £84
To figure out how much tax and NI you’d owe on a different salary, check out this useful calculator.
Bear in mind that these figures apply to the 2017/18 tax year and are subject to change when the new tax year starts in April 2018.