Advice on taxes

gandalfina

Hi,

i've recently relocated in the UK and starting a job, i was shocked to find out about the huge taxes one has to pay for salaries above 40k. I'm paying off a mortgage and seeing what amount goes to pure tax just makes me think that I need to do something about it. I'd really appreciate advice on how to handle this situation? Can I save some of the money paid and make them work for me?

thanks,
Gandalfina

emmalt

Hi Gandalfina,

Welcome to the forum. I am not sure what you are asking here? You say that you are shocked at the huge amount of taxes you have to pay on salaries over £40K. You haven't mentioned the increase in take home pay. If you are paying more taxes then you are earning more. As my father in law says - you have got to be earning it to pay it.

What advice are you wanting?

Emma

gandalfina

Hi emmalt,

thanks for getting back to me. i'm quite unfamiliar with the options / tools you have to cut on taxes in the UK. If you jump from 40k to 60k a year, the difference in the monthly salary is only £700, and I was wondering if I could be more wise and find out about the options I have to save on taxes. I also pay mortgage and student loan to my university, and these come out of my income after the taxes. Back home there are financial options to include the mortgage / loans in your income prior to taxation. What is the case here in the UK?

thanks a lot

Murdina

I think you are posting in the wrong forum.
My knowledge of US tax is not great but I understand you can offset a lot more stuff than in the UK. Basically, as an employee in the UK the only deductions you will get are pretty much just necessary work expenses (and these are really tightly defined) and pension contributions. The latter may not be ideal for you as you will presumably return to US at some point.
Two things occur to me. Firstly on what basis were you employed here - is it the same company you worked for in US? If so, did they offer you a tax equalised position?
Secondly do you appreciate that a lot of what you earn goes in national insurance, not income tax?
I make the difference in salary from 40k to 60k £983 by the way - assuming tax at 40% and NI at 1%. But maybe I have got the sums wrong.

maninthestreet

gandalfina wrote: »

Hi emmalt,

thanks for getting back to me. i'm quite unfamiliar with the options / tools you have to cut on taxes in the UK. If you jump from 40k to 60k a year, the difference in the monthly salary is only £700, and I was wondering if I could be more wise and find out about the options I have to save on taxes. I also pay mortgage and student loan to my university, and these come out of my income after the taxes. Back home there are financial options to include the mortgage / loans in your income prior to taxation. What is the case here in the UK?

thanks a lot

An increase in salary of 20K means a gross monthly increase of £1666. With 40% tax and 1% NI, this means a net monthly increase of £983.
There is no tax relief available for mortgages or any other sort of loan.
Welcome to Britain.

jamesd

gandalfina, mortgage interest used to have a tax allowance called MIRAS but this was abolished in 2000 so the US mortgage interest deductability equivalent no longer applies here.

There is no tax deductibility for university student loan repayments here, though there can be for some professional education costs.

The major UK tax breaks are:

Personal and/or work pension (similar to US 401(k)): basic tax rate income tax is reclaimed by the pension provider, you can reclaim the difference between basic and higher rate by telling your tax office about your contributions. This gets you almost the full tax refunded, you only lose the 1% National Insurance part.

Cash ISA: tax free interest on money from bank and building society (effectively identical to US bank and S&L) accounts, limited to deposits of 3000 a year (3600 from next tax year). It's the total of all deposits that counts, so take money out and pay it in again and it counts twice.

Stocks and shares ISA: no capital gains tax (CGT) to pay on capital growth, no tax on dividends or corporate bond fund income. 20% tax on bank-account style interest, unlike the cash ISA. Maximum 7,000 this year, 7,200 next but the cash ISA amount is deducted from it, all deducted this year regardless of how much used, next year only the cash part deposited is deducted.

Capital gains tax allowance: 9,200 of capital gains are free of tax, changes each year. Also you only pay tax on collective investments like mutual funds, unit trusts, OEICs and SICAVs when you sell, not when the fund manager sells. But watch out for potentially very nasty US tax treatment of foreign collective investments.

Personal allowances, 5,225 tax free income.

You're also going to have to watch your US tax on worldwide income assuming that you're a US citizen.

Don't forget to include the national 17.5% sales tax in your tax calculations, not charged on basic foods or children's clothing, almost never itemised on receipts (not supposed to be, so retailers are correct not to do it). Then work out the benefits that the taxes are paying for (like the health care system without additional employee or employer costs, including after retirement) to see if the trade looks reasonable or not.