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If you’re overwhelmed by the search for optimal tax rates or struggling to manage multiple savings accounts, we’ve prepared a detailed article summarising the tax rates and savings thresholds for 2024/25.
Tax Rates:2024/25
Personal allowance – £12,570
This is the amount of income you do not have to pay tax on.
However, Your Personal Allowance may be bigger if you claim Marriage Allowance. Or it’s smaller if your income is over £100,000.
Your Personal Allowance goes down by £1 for every £2 that your income is above £100,000 . This means your allowance is zero if your income is £125,140 or above.
Marriage Allowance – lets you transfer £1,260 of your Personal Allowance to your husband, wife or civil partner.
To benefit as a couple, you (as the lower earner) must normally have an income below your Personal Allowance – this is usually £12,570. To qualify, your partner’s income is between £12,571 and £50,270 before they receive Marriage Allowance.
Dividend allowance at 0% tax rate : £500 All individuals
Tax rates on dividend income above the allowance:
Basic rate – 8.75%
Higher rate – 33.75%
Additional rate – 39.35%
Other Allowances:
- Trading allowance – your first £1,000 of income from self-employment
- Property Allowance your first £1,000 of income from property you rent unless you’re using the Rent a Room Scheme
- Rent a Room Relief – a threshold of £7,500 per year tax-free from letting out furnished accommodation in your home. This is halved if you share the income
with your partner or someone else.
Income tax Rates:
UK taxpayers excluding Scottish taxpayers’ 24/25 – Thresholds for non-dividend, non-savings income:
20% basic rate on taxable income up to £37,700
40% higher rate on next slice of income over £37,701 to £125,140
45% additional rate on income over £125,141
High Income Child Benefit Charge:
1% of benefit per £200 (£100 23/24) of adjusted net income between £60,000–£80,000 (£50,000–£60,000 23/24).
Registered Pension Annual Allowance – £60,000 from 6th April 2023.
The annual pension allowance up until 5th April 2023 was £40,000 per year.
Annual allowance charge on excess is at applicable tax rate on earnings.
If you earn over £240,000 a year, you’ll also be limited by the tapered pension allowance., subject to threshold income being over £200,000.
You can carry forward unused annual allowances from the 3 previous tax years. You do not need to report this to HMRC.
If you have unused annual allowances from more than one year, you need to use them in order of earliest to most recent. You need to have been a member of a pension scheme for every year you want to claim.
If your adjusted income is over £260,000 your annual allowance in the current tax year will be reduced. Reduced by £1 for every £2 of adjusted income over £260,000 to a minimum of £10,000 annual allowance. It will not be reduced if your threshold income for the current tax year is £200,000 or less, no matter what your adjusted income is. The ‘adjusted income’ definition adds in the value of all pension contributions they were paid before tax relief was given to prevent individuals from avoiding the restriction by exchanging salary for employer contributions, including the amount of pension savings your employer made for you.
Tax relief is available on your pension contributions at the highest rate of income tax that you pay.
If you have no UK relevant earnings, you are limited to tax relief on a gross contribution of £3,600 (£2,880 net).
Tax relief is only given on pension contributions if you are under age 75 and are a relevant UK individual.
An individual is a relevant UK individual for a tax year if they:
- have relevant UK earnings chargeable to income tax for that tax year
- are resident in the United Kingdom at some time during that tax year
- were resident in the UK at some time during the five tax years immediately before the tax year in question and they were also resident in the UK when they joined the pension scheme.
Examples of relevant UK earnings means any one or more of the following types of income.
- employment income
- income from a trade or profession that is chargeable under Part 2 Income Tax (Trading and Other Income)
- income from a UK and/or EEA furnished holiday lettings business
- royalties or other sums paid regarding patent use
For the avoidance of doubt any income from investments including interest, dividends and capital gains, pension are not classed as earnings and cannot be included in the definition of relevant UK earnings.
Investments
Individual Savings Accounts (ISAs) 2024/25
There are 4 types of ISA. You must be 18 or over to open an ISA. You must also be a resident in the UK, or a member of the armed forces or a Crown servant.
The threshold is £20,000 per year. You can choose to invest in one type of ISA, or split the allowance between different types of ISA.
Cash ISA -£20,000 – you do not pay tax on interest on cash in an ISA.
Stocks and shares ISA – £20,000 – You do not pay tax on income or capital gains from investments in an ISA.
Innovative Finance ISA – £20,000 for example peer-to-peer loans, and ‘crowdfunding debentures’
Lifetime ISA – £4,000 – Lifetime ISAs may include either cash stocks and shares.
Junior ISAs
There is a version of the ISA for kids, called a junior ISA (JISA). You can save or invest for your child.
You can save up to £9,000 a year (for 2024/25) into a JISA. There are 2 types of Junior ISA:
- a cash Junior ISA, for example you will not pay tax on interest on the cash you save
- a stocks and shares Junior ISA, for example your cash is invested and you will not pay tax on any capital growth or dividends you receive.
Capital Gains Tax
Annual exemption: Individuals – £3,000 for 2024/25 (reduced from £6,000 for the earlier year 2023,24.
Basic Rate Tax Rate 10%
Surcharge for residential property 8%
Within UK higher and additional rate bands Tax rate 20%
Surcharge for residential property 4%
Report and pay within 60 days of completion of conveyance of the property
Business Asset Disposal Relief
10% on lifetime limit of £1,000,000 for trading businesses and companies
(minimum 5% participation) held for at least 2 years.
Fiscal Drag
Almost all the main allowances and thresholds in income tax and national insurance contributions were frozen rather than indexed to inflation, as is the default in nearly all cases, up to and including 2027/28.
As people’s nominal incomes increase due to inflation, but tax thresholds remain the same (or rise slower than inflation), more of their income is subject to higher tax rates.
From 6th April 2023, the additional rate threshold 45% was lowered to apply for income over £125,140 vs 150,000 in the previous tax years. This is the first change to the allowance since it was introduced in April 2010, and it will remain frozen in cash terms.
It is estimated that nearly 400,000 higher rate taxpayers would have moved from the higher rate onto the additional rate.
The lowered additional rate threshold will cost most additional rate taxpayers £1,243 in additional income tax.
In the UK, Jeremy Hunt, confirmed a six-year income tax threshold Freeze between 2022/23 and 2028/29, which would drag millions into paying higher rates. This will raise “billions” for the government. In terms of income tax, the latest estimate is that the freeze of income tax thresholds will raise over £33.5 billion a year in 2028/29.
How Chart Accountancy can help
We provide proactive, year-round tax advice to help our clients operate more efficiently and secure a stronger financial future.
