Andorra vs The UK: A Comparison of Tax Systems

1. Personal Income Tax

Andorra
One of the main reasons people choose to move to Andorra is its exceptionally low personal income tax system. Andorra employs a progressive tax system, but with very low rates. Here’s how it works:

• €0 – €24,000: 0%
• €24,001 – €40,000: 5%
• €40,001 and above: 10%

This tax system is highly attractive to high-net-worth individuals, as they can benefit from very low tax rates. The first €24,000 of income is tax-free, and only individuals earning more than €40,000 are taxed at the top rate of 10%.

Additionally, Andorra does not tax savings income (e.g., interest, dividends, or capital gains from investments), which is another significant draw for investors.

UK
The UK has a progressive income tax system with higher rates. The current tax brackets for the 2024/2025 tax year are as follows:

• £0 – £12,570: 0% (Personal allowance)
• £12,571 – £50,270: 20% (Basic rate)
• £50,271 – £150,000: 40% (Higher rate)
• £150,001 and above: 45% (Additional rate)

In addition to the income tax, the UK also has National Insurance contributions (NI), which are paid by both employees and employers. These contributions fund the National Health Service (NHS), pensions, and other social benefits. The NI rates are generally between 12% to 14% on earned income, with additional rates for higher earners.

In contrast to Andorra’s favorable tax system, the UK’s income tax rates, especially for high earners, are considerably higher. However, the UK does offer a wide array of social benefits, including healthcare, unemployment benefits, and public services, funded by these taxes.

2. Corporate Tax

Andorra
Andorra is one of the most attractive countries in Europe for business owners due to its low corporate tax rate. The standard corporate tax rate in Andorra is just 10%, one of the lowest in Europe. Furthermore, there are tax exemptions or reduced rates available for certain types of businesses, such as those engaged in international trade, research and development (R&D), or finance.

• Corporate Tax Rate: 10%
• Special Tax Regimes: For international companies or research-based enterprises, Andorra offers tax exemptions or even lower rates to incentivize investment.

This makes Andorra particularly appealing for entrepreneurs, startups, and those looking to relocate their business operations to a low-tax environment.

UK
In comparison, the UK’s corporate tax rate is higher. As of 2024, the corporate tax rate in the UK is set at 25% for businesses with profits above £250,000. Smaller businesses (those with profits under £50,000) benefit from a small profits rate of 19%.

The UK also has various incentives and allowances available for businesses, such as the Research and Development (R&D) Tax Credit and the Patent Box regime for companies involved in innovation. However, the standard corporate tax rate is still higher than in Andorra, making Andorra a more tax-efficient location for many businesses, particularly those operating internationally.

3. Value Added Tax (VAT)

Andorra
One of the major tax advantages of living in Andorra is its low VAT. The standard VAT rate in Andorra is just 4.5%, which is significantly lower than in most other European countries. Certain goods and services are exempt or taxed at a reduced rate, making Andorra an attractive location for both consumers and businesses, particularly for those purchasing luxury goods, vehicles, or real estate.

UK
The UK has a standard VAT rate of 20%, which is much higher than Andorra’s. However, the UK offers reduced VAT rates for certain goods and services, such as 5% VAT on energy bills, and 0% VAT on food, children’s clothing, and books. Despite the reduced rates, the UK’s VAT system is still substantially more burdensome compared to Andorra’s.

4. Capital Gains Tax

Andorra
Andorra is highly attractive for investors because it does not impose any capital gains tax on the sale of assets such as real estate, stocks, or bonds. This is a major benefit for individuals who are engaged in buying and selling assets, whether for personal wealth management or business investment purposes.

• Capital Gains Tax: 0%

UK
In the UK, capital gains are subject to capital gains tax (CGT), which is payable when assets are sold for a profit. The tax rates depend on the individual’s total income and the type of asset being sold. For individuals, the CGT rates are:

• 10% on gains for basic-rate taxpayers
• 20% on gains for higher-rate taxpayers
• 18% or 28% on gains from the sale of residential property (depending on income)

While the UK offers some exemptions, such as annual tax-free allowances (the annual exempt amount for 2024 is £12,300), it still imposes a significant tax on capital gains compared to Andorra, where such gains are tax-free.

5. Social Security and Other Contributions

Andorra
Andorra’s social security system is relatively efficient, and contributions are much lower than in the UK. Employees pay about 6.5% of their income to the social security system, and employers contribute a similar amount. In return, residents receive access to healthcare, pensions, and other benefits, but at a much lower cost compared to the UK.

UK
In the UK, National Insurance (NI) contributions are higher, as they fund the country’s extensive welfare state, including the NHS (National Health Service). The employee contribution rate is 12% on income between £12,570 and £50,270, and 2% on income above that threshold. Employers also make significant contributions to NI, amounting to 13.8% of salaries.

6. Inheritance and Wealth Tax

Andorra
Andorra does not impose an inheritance tax or wealth tax, which is another compelling reason why it is popular with high-net-worth individuals. This makes Andorra one of the most attractive locations for those looking to preserve and transfer wealth across generations.

UK
In the UK, inheritance tax applies to estates valued above £325,000 (as of 2024), with a tax rate of 40% on amounts above this threshold. The UK also has a wealth tax on individuals whose estates exceed the inheritance tax threshold, which can make the UK a less attractive destination for wealth preservation.

Conclusion: Which Tax System is Better for You?

The choice between Andorra and the UK largely depends on your financial goals, lifestyle preferences, and whether you value a lower tax burden or the extensive public services available in the UK.

• Andorra offers a much lower tax burden, with a maximum personal income tax of just 10%, no capital gains tax, and no inheritance or wealth tax. This makes it an ideal destination for high-net-worth individuals, entrepreneurs, and investors who want to preserve and grow their wealth while enjoying low taxes.
• The UK, while offering higher tax rates, has a more complex tax system with social benefits such as universal healthcare (NHS), unemployment support, and extensive public services. The higher tax burden might be justified for those who prioritize social services, security, and the robust infrastructure that the UK offers.

If tax efficiency and wealth preservation are your top priorities, Andorra is likely the better choice. However, if you are seeking a more diverse economy, higher social benefits, and a larger international business network, the UK may be more suitable.

Other tax systems comparisons

• Taxes in Andorra vs. the UK
• Taxes in Andorra vs. France
• Taxes in Andorra vs. Russia