In recent years, inflation has been increasing. At the same time, the average salary in the UK remains at approximately the same level. Considering the income tax, housing, and living costs, it can be challenging to identify whether 40k is a good salary in the UK.
In this article, we’ll answer this question in detail.
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Whether you are considering moving to the UK or looking for a new job, it is essential to know more about average salary rates and the cost of living.
2023 could have been a better year for essential living costs in the UK. The prices have risen, and the national average wage has remained almost unchanged.
In 2022, the UK was in 16th place on the list of most expensive countries to live in, which adds difficulties to financial planning. Before we evaluate a 40k salary regarding the ability to cover essential living costs, let’s identify what those costs include.
First of all, it is crucial to address the regional disparities. The most expensive place to live in the UK is London. The national average salary in the UK will also differ in every region. The same goes for housing costs, transportation, and food prices.
On average, the monthly essential expenses of a UK household include (according to the NimbleFins research):
The disposable income changes based on the rising cost of living. It might be more challenging to achieve financial goals or add regularly to a personal emergency fund. Higher living costs in 2023 had to do with inflation (in November, it reached the highest rate for the last 45 years) and food, rent, and transportation prices.
As a result, it might be challenging to figure out what a decent salary in the UK is for 2024 or what a reasonable wage is.
According to Forbes, the average salary in the UK differs based on the age group. The annual median UK salary for 2024 is as follows:
The overall median salary in the UK for all age groups is £33,280. Based on that, the annual salary of 40,000 contributes to a decent income. It is significantly higher than the country average. This is a short answer to the question, “Is 40k a good salary in the UK?”. However, it might not be enough to live comfortably in London. It is the only place in the UK where the median salary is £41,866.
For comparison, the average salary in the South East region is £34,431, and in the North East region, it is £29,521. In Northern Ireland, the average annual income is £30,000.
A good income is not only what you make. It is a take-home pay concerning living costs, financial commitments, existing debts, unexpected expenses, etc. 40k salary is a good salary in major cities besides London. It covers all the essential costs and ensures a comfortable lifestyle in general.
However, individual circumstances always influence the situation, like high-interest debt or a frugal lifestyle.
Overall, a 40k salary covers the middle-class bracket. It comes with good purchasing power and the opportunity to save for future property ownership.
It comes with decent financial freedom even after all the taxes.
If you receive a 40k salary, you are in a 20% tax bracket. Let’s say your income is precisely £40,000 before any tax deductions. In this case, your tax-free allowance is £12,570.
The 20% of income tax and the national insurance are deducted from the remaining £27,430. So you’ll have to pay £5,486 a year for income tax and £3,991 for national insurance. With these deductions out of the way, you’ll end up with £30,523 per year or £2,544 monthly.
Council tax is an annual fee UK residents pay to the local council. It depends on location, household income, property ownership, and council needs.
Usually, you’ll pay it ten times a year in monthly instalments (with two months’ council tax-free). It goes to all council services, from libraries and police funding to rubbish collection. The amount you’ll have to pay can vary depending on the region and local specifics. You can also ask for tax reduction based on personal circumstances, including:
As mentioned above, whether 40k is a good salary depends hugely on where you live. Of course, the tax liability remains the same in terms of the national insurance and income tax. However, everything from the council tax to living expenses will be different.
Let’s take London and Manchester for a comparison.
London is the most expensive city in the UK. While “40k a good salary” is valid for all other cities and regions, it is lower than the average of £41,866 here.
On average, a single person needs £3,644 to cover monthly living expenses in London (rent included). Annually, this number means £43,727. These estimations come from the end of 2023.
Is 40k a good salary for a person in London? Well, not really. It can cover most personal expenses, but it is not enough to live comfortably, for retirement planning, or enjoy financial security.
For bigger households, the numbers will be significantly higher. A monthly sum to cover the needs of a family of four in London is £5,700 (£68,400 annually).
Not surprisingly, if you receive a 40k salary in Manchester, you will have more money left.
A single person needs about £830 per month to cover all expenses in Manchester. A family of four needs about £2,796. The consumer prices without the rent here are 20% lower than in London. If you consider prices with the rent, they are 34% lower than in London.
The rent alone is 52% lower than in London. Restaurants are about 20% cheaper, and groceries are about 13% cheaper.
In Manchester, a 40k salary feels significantly higher than in London. Even with additional costs and more responsibilities, you’ll be able to live comfortably with a 40k salary in Manchester.
Overall, a 40k salary is a good one. It allows you to live well and make pension contributions on time. The main difference would be if you decide to move to London. In such a case, it might not cover all the needs.
But in any other region of the UK, the answer to “Is 40k a good salary?” is a firm “yes,” and any financial advisor would agree. It leaves you with a decent personal allowance and the opportunity to save up and achieve financial goals, whether you are interested in planning for retirement or owning a property later in life.
According to the data provided by the Office for National Statistics, the number of low-paid jobs has decreased in 2023 from 10.7% in 2022 to 8.9% in 2023. The lowest-paid employees tend to be young ones, in the age range from 16 to 21.
It has to do with the lack of professional experience and education needed for good career prospects and higher salaries. Only 1.3% of jobs in the UK pay lower than the National Minimum Wage and the National Living Wage.
A 40k salary is above the national average. It provides enough resources to cover the basics and save up.
If you aim high, a 40k salary is far from the limit. The highest-paying companies in the UK often have to do with technology and finance. The top 10 list includes such businesses with the following average salaries:
However, only 4% of taxpayers are employed in these companies. Although they provide high salaries, the field is very competitive and demanding.
It is an excellent salary for a two-person household where both earn a 40k salary. It moves you into a middle-class UK lifestyle bracket. It is enough to cover all their needs and wants and make savings.
To sum up, a 40k salary is suitable for most regions in the UK. It is higher than the average income. It covers all the fundamental expenses and leaves enough money for savings and a comfortable lifestyle. The only exception is London. As the most expensive city in the UK, it comes with higher disbursements in all spheres of life. But it also provides larger salaries.
