Global Major Cities Guide

Explanation of Value Added Tax (VAT) and how it is included in prices, as well as eligibility for VAT refunds for tourists.

Sections

Currency Overview

Currency Used: The official currency in London (and the UK) is the British Pound Sterling (£, GBP).
Denominations: Coins are available in 1p, 2p, 5p, 10p, 20p, 50p, £1, and £2. Notes are available in £5, £10, £20, and £50.
Exchange Rates: Exchange rates fluctuate, so check the current rate before converting money. Currency exchange services are available at airports, banks, post offices, and currency exchange bureaus, but fees and rates vary.
Payment Methods: Credit and debit cards (Visa, Mastercard, and increasingly American Express) are widely accepted. Contactless payments (via cards or mobile apps like Apple Pay and Google Pay) are very common.

Key Tax Categories in London

1. Value Added Tax (VAT)

What It Is: VAT is a consumption tax applied to most goods and services in the UK.
Rate: The standard VAT rate is 20%, but there are reduced rates:
- 5% for certain items like energy bills and children’s car seats.
- 0% for essential items like most food, children’s clothing, and books.
How It’s Collected: VAT is included in the price of goods and services, so you won’t see it as a separate charge at checkout.
For Visitors:
- VAT Refunds: Non-UK residents may be eligible for a VAT refund on goods purchased in the UK if they are taking them out of the country. This is known as the VAT Retail Export Scheme. However, post-Brexit, VAT refunds are no longer available for goods purchased in the UK and taken to the EU.
- To claim a refund, ask the retailer for a VAT refund form, and present it along with your purchases and receipts at the airport when leaving the UK.
For Immigrants: VAT is automatically included in prices, so there’s no additional action required.

2. Council Tax

What It Is: A local tax paid by residents to fund local services such as waste collection, police, and schools.
Who Pays: If you rent or own a property in London, you are responsible for paying council tax. Visitors staying in hotels or short-term accommodations are not subject to this tax.
Rate: The amount depends on:
- The value of the property (divided into bands A to H, with A being the lowest and H the highest).
- The borough where the property is located (rates vary across London boroughs).
- Discounts or exemptions (e.g., single occupants receive a 25% discount, and full-time students are exempt).
How It’s Collected: Paid directly to the local council, usually in monthly installments. You’ll receive a bill outlining the amount and payment options.
For Immigrants: If you’re renting, check with your landlord or letting agent whether council tax is included in your rent. If not, you’ll need to register with the local council to set up payments.

3. Income Tax

What It Is: A tax on earnings, including wages, self-employment income, and pensions.
Who Pays: Anyone working or earning income in the UK, including immigrants.
Rates (2023/24 tax year):
- Personal Allowance: The first £12,570 of income is tax-free.
- Basic Rate: 20% on income between £12,571 and £50,270.
- Higher Rate: 40% on income between £50,271 and £125,140.
- Additional Rate: 45% on income over £125,140.
How It’s Collected:
- For employees: Income tax is deducted automatically through the Pay As You Earn (PAYE) system.
- For self-employed individuals: Tax is paid via a Self-Assessment process, with payments due twice a year (January 31 and July 31).
For Immigrants: If you’re new to the UK, you’ll need a National Insurance Number to work and pay taxes. Apply for one through the UK government website or by phone.

4. National Insurance Contributions (NICs)

What It Is: A tax that funds state benefits like healthcare (NHS) and pensions.
Who Pays: Anyone working in the UK and earning above a certain threshold.
Rates:
- Employees: 12% on earnings between £242 and £967 per week, and 2% on earnings above £967 per week.
- Self-employed: Flat rates of £3.45 per week (Class 2) and 9% on profits between £12,570 and £50,270 (Class 4).
How It’s Collected: Automatically deducted from wages for employees or paid via Self-Assessment for the self-employed.
For Immigrants: NICs are mandatory if you’re working in the UK. Contributions may count toward eligibility for UK state benefits.

5. Stamp Duty Land Tax (SDLT)

What It Is: A tax on property purchases in England, including London.
Who Pays: Buyers of residential or commercial property.
Rates (as of 2023):
- No tax on the first £250,000 of the property price.
- 5% on the portion between £250,001 and £925,000.
- 10% on the portion between £925,001 and £1.5 million.
- 12% on the portion above £1.5 million.
For Immigrants: If you’re buying property in London, you’ll need to budget for SDLT. Additional surcharges may apply for non-UK residents.

6. Other Taxes and Fees

Congestion Charge: A daily fee of £15 for driving in central London during peak hours (Monday to Friday, 7:00 AM to 6:00 PM). Electric vehicles and certain exemptions apply.
Ultra Low Emission Zone (ULEZ) Charge: A fee for vehicles that don’t meet emissions standards, currently £12.50 per day for most vehicles.
Air Passenger Duty (APD): A tax on flights departing from the UK, ranging from £13 to £554 depending on the destination and class of travel.

Payment Procedures

Methods: Most taxes and fees can be paid online, via direct debit, or by card. For council tax and income tax, you can set up monthly payments.
Deadlines: Ensure you meet payment deadlines to avoid penalties. For example, income tax via Self-Assessment is due by January 31 each year.

Exemptions and Considerations

Visitors: Short-term visitors are generally not subject to UK taxes beyond VAT (included in purchases) and specific fees like the Congestion Charge or ULEZ.
Immigrants: If you’re new to the UK, you may qualify for the Statutory Residence Test, which determines your tax residency status. Non-residents are only taxed on UK income, while residents are taxed on worldwide income.
Double Taxation Agreements: The UK has agreements with many countries to prevent double taxation. Check if your home country has such an agreement with the UK.

Cultural and Situational Nuances

Tipping: Service charges (10-15%) are often included in restaurant bills. If not, tipping is customary but not mandatory.
Public Services: Taxes fund services like the NHS, which provides free healthcare at the point of use. Immigrants may need to pay an Immigration Health Surcharge (IHS) as part of their visa application to access the NHS.

By understanding these taxes and fees, visitors and immigrants can better navigate the financial landscape of London and avoid unexpected costs. Let me know if you need further clarification!