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Banks & Taxes in the UK
A Comprehensive Guide about Opening a Bank Account and Managing Your Taxes
Managing finances in the UK should be relatively pain-free. Britain has a customer-friendly banking system and most employed people don’t have direct dealings with the tax office. Read on to find out what first steps you need to take upon arrival in the UK.
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Just as with moving to any country, when you move to the UK, you’ll need to get a bank account and understand the tax system. Setting yourself up on the British tax system is easy if you’re an employee. Your employer should take care of it all. If you’re self-employed, taxes can be more complex, and you’ll need to contact your local UK tax office.
There’s a good spread of consumer banks available to you. Nearly all of them offer basic consumer services for free. For example, cash withdrawals are free at most ATMs. There are lots of different banks offering different services. Yet, opening an account in the UK can be challenging for expats. Our guide provides you with an overview of the most popular banks, the services they offer, and lets you know if you can open a bank account in the UK.
How to Open a Bank Account in the UK
In this section, we’ll cover how to open a bank account in the UK for non-residents, required documents to open a bank account as a non-resident, the best banks and the best online banks in the UK, bank fees and minimum deposits, plus much more.
Banks in the UK specialize in different services for both personal and business purposes. Thus, not all banks may suit your needs. The different branches of the British banking system include:
- High street banks that offer services to the general public.
- Business banking services that are offered by high street banks in addition to ordinary accounts. They often include additional services and fees.
- Investment banking services that are usually offered by financial institutions. They invest money in stocks and bonds.
- Central banks which set the monetary policy of the country in some cases, and ensure sufficient liquidity, or act as a lender. The central bank in the UK is the Bank of England.
The banking system is supposed to support the economy of the country and provide stability. Despite the financial crisis, over one million people are employed in financial services. Banks and their financial and related professional services contribute 11.8% of the national GDP.
The Big Five: Top UK Banks
The top banks in the UK are:
- Royal Bank of Scotland
- Lloyds Banking Group
Other banks include Santander, Halifax, Standard Chartered and Tesco Bank. They may offer specific services and deals which are more suited to your needs. For example, Santander offers no-fee bank accounts in the UK to non-residents. Before opening a bank account, it makes sense to “shop around”, do your research online and in high streets banks, and ask your friends and family which banks they recommend.
There are also international banks in the UK, which might make the process of setting up a bank account as a non-resident easier. These include Bank of America, American Express, Bank of China, State Bank of India, and ABC International Bank.
Moreover, you might be interested in setting up a savings account. Below are some of the best savings accounts or ISA’s (individual savings accounts) in the UK at the time of writing (2019). Note that some of these accounts are only available to permanent UK residents:
- Leeds Building Society – 2.12% AER fixed – permanent residents only
- Principality Building Society – 1.97% AER fixed
- Cynergy Bank – 1.91% AER fixed – permanent residents only
- Aldermore – 1.85% AER fixed – permanent residents only
- Yorkshire Building Society – 1.75% AER fixed
See more savings account deals here.
Setting Up a UK Bank Account
While setting up a UK bank account used to be complicated, banks have started to simplify the process for expats. The most convenient way to do it is by opening a bank account before your move.
Your bank at home might be able to set up an account for you if it has a relationship with a UK bank. Many banks also offer international accounts, which are designed for non-residents. Please note that you might be asked to make a big initial deposit or pay a monthly fee for the latter.
However, if you prefer to take care of it after your arrival, you should make sure to come prepared. Once you’ve chosen a bank, you should make sure to make an appointment with the staff there. Find out ahead of time which forms and which types of identification you need. Keep in mind that some banks may require you to deposit a start-up amount on your new account.
Opening an Account without a UK Address
Please remember that even though the process of opening a bank account has been simplified for expats, opening an account without any proof of address in the UK can be difficult. Luckily, some banks are offering services specifically for newly-arrived expats. One such service is the HSBC Basic Account, which only requires some form of identification and proof of an EU address. If this is not your bank of choice, don’t forget passports, birth certificates, or national insurance cards do not count as proof of address. Instead, try to submit one of the following:
- Recent utility bill (less than three months old)
- Council tax bills
- Recent bank or credit card statements (less than three months old, not printed off the internet)
- Tenancy agreement or mortgage statement
- UK medical card, NHS card, or UK driver’s license
- Motor or home insurances certificates
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What is the Tax System in the UK?
When taking up employment, you’ll probably want to know more about the types of taxes in the UK. Your income tax is directly deducted from your salary on a pay-as-you-earn basis. If this is your only source of income, you don’t even need to file a tax return.
The income tax rate varies based on the following tax brackets in the UK. Currently, the income tax rate is 0% for earnings up to 11,850 GBP, 20% for 11,851 GBP to 46,350 GBP, 40% for 46,351 GBP to 150,000 GBP, and 45% for over 150,000 GBP. Taxes for the self-employed in the UK are the same as for employed people.
In 2017, the Guardian newspaper reported that the average income tax in the UK was actually relatively kind compared to other advanced countries. At the time, someone earning 100,000 GBP lost 34.3% of their earnings to personal allowances, tax on their salary, and national insurance, while that rough figure was higher at 38% in Germany, 41% in Ireland, 45% in Sweden, and 59% in France. The US, Australia, and Spain were about the same as the UK.
It’s important to keep all your records, especially when you’re self-employed and paying taxes in the UK. In the latter case, you have to keep your business records for at least five years.
UK taxation knows many different concepts, from “residence” to “ordinary residence”, to “domicile”. It’s important to know the difference between these as you can claim remittance basis if you’re not an ordinary resident or domiciled in the UK.
A Word of Caution
As in most places around the world, taxes in the UK can be a complex topic. Taxation becomes even trickier when you take the aspect of residence for tax purposes into account. For obvious reasons, we cannot give you information on every aspect of the UK taxation system. Nor can our brief introduction to taxes in the UK replace the professional advice of a tax consultant.
We do, however, provide you with an overview of the UK tax system. We introduce you to some basic facts, as well as explain some key terms of particular relevance for foreign residents. With some general guidance to taxes in the UK, you can then decide if you’d better call upon a tax advisor for help.
Furthermore, when we talk about “taxes in the UK”, we refer to personal income tax for workers, employees, and self-employed residents. Inheritance tax and corporate taxation are different matters, which we don’t cover. If you have any questions on such taxes in the UK, please call a specialist for advice.
To Start Off: Basic Information on Taxation in the UK
First off, let’s start with the very basics. Taxes in the UK are the responsibility Her Majesty’s Revenue and Customs (HMRC). You should contact them for official answers to tax-related questions.
Second, unlike in many other countries, the British fiscal year is not identical with the calendar year, but rather runs from 6 April to 5 April of the following year. This may be important for people moving to or departing from the UK in the middle of the tax year. If you have to file your taxes in the UK, your tax return is either due on 31 October after the end of the fiscal year (paper claim), or by 31 January (online form).
Acquiring Your National Insurance Number and Personal Tax Code
When you arrive in the UK and take up employment, you need to obtain a National Insurance number (NINO) first. The NINO is mostly used for purposes concerning social security. It also indicates if you’re gainfully employed or a self-employed person.
If you’re an employee and have never worked in the UK before, your new company’s HR department should give you a form to fill in. This will contain information essential for paying taxes in the UK (for example, to work out the personal allowance you are entitled to). With the help of this information, your employer — or their tax consultant — can assign you a personal tax code.
The tax code consists of a four-digit combination of various figures and letters, e.g. 117L or K497. It shows up on the payslips you receive, and it implies how much tax is due. Your tax is deducted directly from your salary every month on a PAYE (pay-as-you-earn) basis. If you don’t have any other kind of income, you don’t even have to file a tax return. However, you need to inform the HR department and/or HMRC of all changes in income or personal circumstances. Then you’ll receive a new tax code as needed.
What Counts as Taxable Income in the UK?
In addition to your wages or salary, there are several other kinds of income subject to taxes. They include, for example:
- Company benefits (e.g. cash bonuses, inducement payments, severance payments, company cars, medical insurance, school fees for children, company housing, etc)
- Income from self-employed work
- Income from rental property
- Some UK state benefits (e.g. Jobseeker’s Allowance, Carer’s Allowance)
Other forms of income may be exempt from taxes in the UK, such as:
- The first 5,000 GBP of dividends from company shares (as of 2016)
- Interest from savings under your savings allowance
- Government benefits like Disability Allowance or Maternity Allowance
- Rental income of less than 7,500 GBP per year if it arises from having a lodger in the family home
- Interest on specific savings certificates
- Tax credit for UK families (Child Tax Credit, Working Tax Credit)
Broadly speaking, income subject to taxes in the UK means all your income worldwide. In reality, this does not always apply: please check the section on residence and taxation on the last page of this article for further details.
Do You Need to File a Tax Return?
In addition to the geographical source of your income, other aspects determine whether or not you have to file your taxes in the UK. The latter is called a Self-Assessment tax return, or Self-Assessment for short. Whether you’re required to complete one depends on factors such as your total income, what kinds of income you earn, your profession and your position in a company.
Here are some of the most common cases in which a Self-Assessment becomes necessary:
- You’re self-employed
- You earn more than 100,000 GBP a year
- You’re a company director
- You’re a religious minister of any faith
- You draw an annual income of 2,500 GBP or more from savings, investment, or property
- You have income from settlement, estates, or trusts
- You need to pay Capital Gains Tax. This sort of taxes in the UK is levied on the profits of selling valuable artwork or jewelry, or any property that is not the family home (such as inherited property, land, and business premises)
- You want to claim annual expenses of over 2,500 GBP
- You have foreign income subject to taxes in the UK
- You’re not counted as “resident” or “ordinarily resident” for tax purposes
- You’re not “domiciled” in the UK and want to claim remittance
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