UK TAX RATES 24/25
The tax year starts today, the 6th of April and will end on April 5th of next year. It’s important to note that tax rates, limits, and allowances can change from year to year, affecting the amount people pay in taxes. To help you prepare, here’s a convenient overview of the upcoming tax year (2024/25):
- Income tax
- Dividend income tax rates & dividend allowance
- Personal savings allowance & starter rate for savings
- Capital gains tax allowances
- ISAs
- Pensions
- IHT
If you want to learn more about what the end of the tax year means for expats, read here and if you would like to learn more about UK tax returns, download our guide.
If you would like to speak with one of our tax advisers from Hoxton Tax, get in touch.
Income tax
Your income tax is calculated based on different tax bands that apply to different portions of your earnings. In the Autumn Statement last year, the Chancellor announced that these income tax thresholds will be frozen for an extended period until April 2028. The 45% ‘additional rate’ band will also be reduced from £150,000 to £125,140. As a result, individuals will end up paying more in taxes as their wages increase.
For the tax year 2024/25, the income tax rates are as follows:
- Basic tax rate at 20%: Applicable to earnings up to £37,700
- Higher tax rate at 40%: Applicable to earnings from £37,701 to £125,140
- Additional tax rate at 45%: Applicable to earnings above £125,140
The Personal Allowance, which is the amount of income on which no tax is paid, remains at £12,570 per year for the tax year 2024/25. However, the Personal Allowance is reduced for those earning over £100,000. For every £2 earned above £100,000, the Personal Allowance is reduced by £1. If you earn £125,140 or more, your Personal Allowance will be reduced to zero.
Please note that income tax rates on earned income are different in Scotland, with the higher and top rates of tax increasing by 1% for the new tax year as follows:
- Starter Rate at @19%: Applicable to earnings up to £14,876
- Basic tax rate at 20%: Applicable to earnings from £14,877 to £26,651
- Intermediate tax rate at 21%: Applicable to earnings from £26,652 to £43,662
- Higher tax rate at 42%: Applicable to earnings from £43,663 to £75000
- Advanced rate @4 5%: Applicable to earnings from £75,001 to £125,140
- Additional tax rate at 48%: Applicable to earnings above £125,140
2. Dividend income tax rates & dividend allowance
In the UK, taxpayers receive a Dividend Allowance, which allows them to receive a certain amount of dividend income each tax year without paying any additional tax. For the 2024/25 tax year, the Dividend Allowance is set at £500.
Dividends received above this allowance are subject to income tax based on the taxpayer’s applicable income tax rate. To determine which tax band applies to your dividend income, add it to your other income in the same tax year. The income tax rates on dividends are as follows:
- Basic rate taxpayers: 8.75%
- Higher rate taxpayers: 33.75%
- Additional rate taxpayers: 39.35%
3. Personal savings allowance and starter rate for savings
The personal savings allowance provides a tax-free threshold for savings income, with different allowances based on income tax rates. Basic-rate taxpayers have an allowance of £1,000, while higher-rate taxpayers have an allowance of £500. However, additional-rate taxpayers, who are on the top 45% income tax rate, do not receive any allowance.
It’s important to note that interest from tax-free sources, such as ISAs and Premium Bond winnings, does not count towards the allowance. However, certain investments, such as gilts, corporate bonds, unit trusts, OEICs, and investment trusts that primarily invest in bonds and pay interest instead of dividends, do count towards the allowance.
For lower earners, there is a starter rate for savings of up to £5,000 per year, on which no tax is payable if their other income is less than £17,570 in that tax year. Every £1 of other income above the Personal Allowance reduces the starting rate “band” by £1.
4. Capital Gains Tax allowance
The ‘annual exemption amount’ for capital gains tax is the maximum profit you can make from the sale or disposal of assets without being subject to capital gains tax. For the 2024/25 tax year, the allowance has been reduced to £3,000, down from £6,000 in 2023/24.
The rates of capital gains tax vary depending on whether you fall under the basic rate or a higher rate for income tax. For assets other than residential property, the rates are 10% for basic rate taxpayers and 20% for higher rate taxpayers. However, the rates for residential property (excluding your own home) are 18% and 24%, respectively. The specific rate of capital gains tax that applies to you will depend on your overall taxable income. For further details, you can refer to the HMRC website.
5. ISAS
The ISA allowance for 2024/25 will remain at £20,000. This allowance is available to UK residents who are 18 years or older, and there are two main options for ISAs: Cash ISA and Stocks and Shares ISA. You can split your allowance between these types of ISAs if you choose, with the requirement that you can only contribute through one provider for each type of ISA in each tax year.
For 24/25 there is an additional ISA allowance of £5,000 for Investments in British Industry, more details are to follow. But this will take the total allowance up to £25,000.
Investments made in an ISA are exempt from capital gains tax and income tax, providing a tax-efficient way to grow your wealth. By investing early in the tax year, you can earn a year’s worth of income and growth without being subject to taxes. However, it’s important to note that investments can also fall in value during this period. Remember that annual ISA allowances cannot be carried forward or used retrospectively, so it’s wise to use them within the current tax year.
6. Pensions
After the Spring Budget last year, the maximum amount that can be contributed to all your pensions, known as the ‘annual allowance’, has increased to £60,000. Income tax relief on personal contributions is generally limited to 100% of your relevant UK earnings for the tax year.
Currently, investors can receive up to 45% tax relief when making personal contributions to a personal pension, such as a SIPP, with 20% tax relief paid by HMRC to the pension, and any higher and additional rate tax relief reclaimable. Please note that tax rates and pension tax relief for Scottish taxpayers may differ slightly from the rest of the UK.
Individuals contributing to a pension, including SIPPs, can carry forward and contribute unused annual allowances from the three previous tax years, subject to sufficient earnings in the tax year.
For those who receive taxable ‘flexible’ retirement benefits, such as income or lump sums from pension drawdown, a lower annual allowance known as the Money Purchase Annual Allowance or MPAA applies. This allowance has increased from £4,000 to £10,000 starting from the 2023/24 tax year.
For high earners, the annual allowance is gradually reduced to a minimum of £10,000 in the 2023/24 tax year, up from £4,000 previously. However, this reduction only applies to those whose earnings and income are broadly over £200,000 per year. For more information, please refer to the HMRC website.
Non-taxpayers can still benefit from pension tax relief to a limited extent. Individuals under the age of 75 who are eligible can contribute up to £2,880 to a pension and receive tax relief of £720, resulting in a total contribution of £3,600, regardless of earnings.
The cap on the total value of pensions from which benefits can be drawn without triggering a tax charge, known as the Lifetime Allowance, was abolished with effect from 6th April 2024.
7. Inheritance tax
Inheritance tax is still charged at a rate of 40% on a person’s estate that exceeds the tax-free allowance, also known as the nil-rate band, which is currently set at £325,000. The Chancellor has extended a freeze on the inheritance tax threshold until April 2028, resulting in more individuals having to pay IHT as a larger number of estates exceed the tax threshold, largely due to rising property prices. This means that careful planning is often necessary, not only for the wealthy but also for many families who may consider their situation ordinary and not anticipate the impact of IHT.
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*The information provided on this page is based on our current understanding of HMRC legislation. Tax reliefs and allowances mentioned are those currently in effect, but levels and bases of taxation are subject to change. The tax treatment of any individual or entity depends on their unique circumstances and may be subject to future changes. If you have any doubts or questions, it is advisable to seek professional tax advice.
