UK Tax Rates 2024/25: Your Complete Guide

As we enter the 2024/25 financial year, understanding the nuances of the personal tax allowance and the broader tax landscape in the UK is essential for effective financial planning. With the personal tax allowance remaining unchanged at £12,570 for individuals earning below £100,000, it's important to delve into the details of how this impacts taxpayers across different income brackets and how changes in taxation for savings, dividends, ISAs, and pensions may affect your financial strategy.

Personal Tax Allowance

What is the Personal Tax Allowance?

The personal tax allowance is the amount of money you can earn each year before you need to start paying income tax.  

What is the Personal Allowance for 2024/2025?

For the 2024/25 tax year, the personal allowance remains at £12,570. This is applicable to individuals earning less than £100,000 per year. For those earning above this threshold, the allowance decreases by £1 for every £2 of income above £100,000 until it disappears at £125,140.

Income Tax Bands

What are Income Tax Bands?

Income tax bands are essentially the categories into which your income is divided for taxation purposes, with each band subject to a different tax rate. These bands determine how much tax you'll pay on various portions of your income over the personal tax allowance.

What are UK Tax Bandings for 2024/2025?

In the 2024/25 tax year for England, Wales, and Northern Ireland, the bands are:

• Personal Allowance: Up to £12,570 - 0% tax. This is the portion of your income that's tax-free.
• Basic Rate: £12,571 to £50,270 - 20% tax. You'll pay 20% on income that falls within this range.
• Higher Rate: £50,271 to £125,140 - 40% tax. Income in this range is taxed at a higher rate of 40%.
• Additional Rate: Over £125,140 - 45% tax. This is the highest tax rate, applied to the top slice of your income.

Scotland has its own set of bands, including a Starter Rate of 19% for income just over the personal allowance, and new rates introduced for the 2024/25 tax year, such as the Advanced Rate at 45% for earnings between £75,001 and £125,140, and a Top Rate of 48% for earnings above £125,141.

These bands and rates are designed to ensure a progressive tax system, where you pay a higher percentage of tax on higher earnings. This structure aims to balance the tax burden across different income levels, ensuring that those who can afford to contribute more do so, while protecting lower earners from heavy taxation.

Tax on Savings

The personal savings allowance remains at £1,000 for basic-rate taxpayers and £500 for higher-rate taxpayers. The starting rate for savings offers up to £5,000 of interest earnings without tax, applicable for incomes less than £17,570.

Tax on Dividend Income

The dividend tax rates for the 2024/25 tax year have been set at 8.75% for basic rate taxpayers, 33.75% for higher-rate taxpayers, and 39.35% for additional rate taxpayers. The tax-free dividend allowance is £500.

ISA Allowance and Tax-Efficient Investments

The Individual Savings Account (ISAs) Allowance 

The total limit for ISAs remains at £20,000, with the notable change allowing individuals to spread this allowance across multiple cash or stocks and shares ISAs within the same tax year.

VCT, SEIS and EIS

The Venture Capital Trust (VCT), Enterprise Investment Scheme (EIS), and Seed Enterprise Investment Scheme (SEIS) maintain their attractive tax incentives for investors, with specific limits and conditions applied to encourage investment in startups and growing businesses.

Pension Contributions and Tax Relief

Pension tax relief remains a significant incentive for saving into a pension scheme, with relief rates aligned to your income tax band. The annual allowance for pension contributions is £60,000, with a reduced allowance for high earners and a money purchase annual allowance set at £10,000.

Capital Gains Tax for 2024/25 

The annual exempt amount for capital gains tax is £3,000 for individuals and estates, with rates of 10% for lower bands and 20% for higher bands. Special surcharges apply to residential property and carried interest.

Inheritance Tax for 2024/25

The nil-rate band for inheritance tax remains at £325,000, with the residence nil-rate band at £175,000. The standard tax rate on the value above these thresholds is 40%, with a reduced rate of 36% if at least 10% of the net estate is left to charity.

Summarising the Changes of the Spring Budget 2024

The 2024/25 tax year presents a landscape familiar in many ways to the previous year, with stability in personal tax allowance and ISA limits providing a solid foundation for financial planning. However, the introduction of new tax bands for Scottish taxpayers and continued incentives for tax-efficient investments underscore the importance of staying informed and strategically planning your finances in accordance with the latest tax regulations.

As always, consider consulting with a financial adviser to navigate the complexities of tax planning and to tailor a financial strategy that maximizes your tax efficiency and aligns with your long-term financial goals.