TAX TAKE AND WHAT IS LEFT (UK)
What happens to a £45,000 salary in England 2025/6?
Nearly 50% goes to Government via Taxes and Fees; 50% on essential living costs
The following is a demonstration for a family of 4.
Brief Summary
Total Tax: £22,440 (47%) (includes VAT)
Total essential spending: £23,140 (50.13%)
Total: £45,580 (49%)
Government give back (benefits) (2 children): £2,251
Discretionary spending: £1672 (4%)
*The % of total tax and of essential spending, above, is out of a total of £47,251 as we include government give backs (benefits).
How we got there?
1. Deductions from Pay Slip
- Income Tax: £6,486.
- Personal Allowance £12,570 tax-free.
- Remainder (£32,430) taxed at 20%.
- Employee NI: £2,594.
- 8% on earnings between £12,570 and £50,270 (but 6% of the total).
Total Tax Take: £9,080.
2. VAT and other compulsory taxes
These are taxes most families face regardless of lifestyle.
- VAT: Office for National Statistics estimates household average ~£6,300/year.
- Council Tax: ~£3,200 (Band E/F average in suburban areas).
- Fuel Duty:~£850, based on 12,000 miles/year at 40 mpg, duty of 52.95p/litre.
- Vehicle Excise Duty (VED): ~£195 for a standard post-2017 petrol car.
- Insurance Premium Tax (IPT): ~£140, charged at 12% on car/home policies and 20% on travel insurance.
- TV Licence:£174.50.
Total circa: £10,860.
3. Optional but common taxes
These are not universal, but most households encounter at least some of these every year. We have taken an estimate. Be aware these eleven examples are the tip of the iceberg.
- Student Loan: £1,488/year (9% of earnings above the £28,470 threshold).
- Air Passenger Duty (APD):£90 per adult for long-haul economy flights; example: 2 adults to the USA = £180 total (children under 16 exempt in economy).
- Alcohol Duty: Realistic moderate assumption = 1 bottle of wine per week plus occasional beers, adding ~£160/year in duty (excluding VAT, already captured in prices).
- Tobacco Duty (if applicable): ~£3,000/year tax for a pack-a-day smoker.
- Capital Gains Tax: 10–20% on gains, situational (e.g. second property or share sales).
- Stamp Duty (when buying a home): £4,750 on a £295,000 property (one-off, episodic).
- Inheritance Tax (later-life impact): 40% on estates above £325,000; with allowances, many family homes now fall into scope.
- Sugar Levy: 24p per litre on high-sugar drinks.
- Parking fines, congestion charges: ~£100–£200/year for a typical suburban driver.
- Passports/licences: £82 per adult passport every 10 years, £34 for licence renewal. Averaged, ~£15/year per adult.
- Planning fees embedded in the cost of the house: these are hard to estimate, but present.
Total circa: £2,500.
4. Essential living costs
These are core necessities (ex VAT where relevant).
- Housing: ~£11,520/year (rent, mortgage and other costs).
- Utilities: ~£2,240/year (energy, water, broadband, mobiles).
- Food: ~£4,160/year £80/week groceries; basic food is VAT-free).
- Transport (non-fuel): ~£960/year (insurance excess, MOT, maintenance, depreciation).
- Child-related essentials: ~£960/year (uniforms, clubs, trips).
- Other necessities: ~£2,000/year (clothing, household goods, dental/optician).
- Holiday: £1,300
Total circa: £23,140 (VAT not included).
5. Other financial pressures, optional but likely spend
Beyond taxes, other charges erode disposable income.
- Credit card interest:
- Average revolving balance ~£1,500–£2,500.
- At ~20–35% APR, cost is £125–£900/year if not cleared monthly.
- Bank/overdraft charges: ~£50–£150/year.
- Subscriptions: streaming, online services, etc., £100–£300/year very common.
Total circa: £700
6. “Hidden” business taxes passed onto you
These charges don’t show on your bill. Paid by employers/suppliers, but they filter through to higher prices and lower wages.
- Employer NI: 15% on earnings above threshold. For £45k salary, employer pays ≈£6k → job cost ≈£51k. With your own tax/NI, state takes ≈£15.1k. Cuts wage headroom.
- Apprenticeship Levy: 0.5% of payroll >£3m. Retailer with £10m bill pays ≈£35k pa. Across 200 staff = ≈£175 each, absorbed via lower pay growth, tighter margins, or higher prices.
- Energy Profits Levy: 35% surcharge on oil/gas profits → sector rate ≈75%. Passed on indirectly via investment cuts + supply constraints raising retail prices.
- Electricity Generator Levy: 45% on exceptional receipts > benchmark. Reduces margins when prices spike, knock-on effect on energy costs.
- Business Rates: Based on property RV. Shop with £80k RV faces 5-figure annual bill, recovered in pricing.
- Plastic Packaging Tax: £223.68/t (Apr 2025). Manufacturer using 200t non-recycled plastic pays ≈£44.7k, adding ≈0.9p across 5m packs.
- Landfill Tax: £126.15/t (Apr 2025). Raises disposal costs, lifting prices for goods/services with heavy waste streams.
7. Benefits Give Backs - A note on Child Benefits
- £26.05 per week for the first child.
- £17.25 per week for the second child.
- Paid every 4 weeks (weekly in some cases).
- Not means-tested, but High Income Charge reduces it if income exceeds £60,000.
- At £45,000, you receive the full amount.
SOURCES
Cost of living crisis.
How you pay income tax.
How VAT works.
London cost of living.