The 2024/2025 tax year is underway bringing with it a number of changes to some tax rates and tax allowances.
Starting from 6 April 2024 the differences to the tax rates and allowances will impact individuals in a variety of ways with some moving up and others down.
Discovering all the essential information around what will affect your tax position is key to effective financial planning for the 24/25 tax year and can serve as an excellent strategy to minimise your total tax liability.
You can also refer to our blog about changes to benefits and income support allowances (like universal credit and the earning support allowance) for the 24/25 year.
Personal allowance 2024/2025 tax year
Importantly the personal allowance signifies the amount of money that you are entitled to keep without paying income tax and directly effects your tax code which tells your employer or pension provider how much tax to deduct from you.
The 2024/25 personal allowance is £12,570 and represents the annual threshold for income that you can earn or receive before being liable to pay income tax from April 6 2024 up to 5 April 2025.
Personal allowances can change up or down depending on a number of factors like having company benefits, claiming work expenses from HMRC and if you claim the marriage tax allowance.
Marriage tax allowance 2024/2025 tax year
The marriage tax allowance allows you to transfer £1,260 of your personal allowance to your spouse or civil partner, reducing their tax by up to £252 in the tax year (6 April to 5 April the following year).
For the tax year 2024/25, the marriage allowance stands at £1,260 resulting in the donating spouse or partner forfeiting £1,260 of their personal allowance, while the receiving spouse or partner receives a tax reduction (tax credit) of £252.
As a couple, the maximum tax savings you can benefit from the marriage allowance in the 2024/25 tax year amount to £252.
Personal savings allowance 2024/2025 tax year
Your personal savings allowance (PSA) is a tax-free allowance that enables you to generate interest on your savings without being liable for tax on that interest.
The PSA for the 24/25 tax year is determined by the income tax rate you pay:
- For taxpayers in the basic-rate bracket (20%): you can earn up to £1,000 in savings interest per year without being taxed.
- For taxpayers in the higher-rate bracket (40%): you can earn up to £500 in savings interest per year without being taxed.
- For taxpayers in the additional-rate bracket (45%): there is no allowance available, meaning any savings interest earned will be subject to tax.
Dividend allowance 2024/2025 tax year
Dividend tax applies to the dividends you receive from shares. It encompasses both individual shares and collective investments such as share-based funds.
How much divided tax you are required to pay depends on your income tax rate.
Dividends can be offset against your personal allowance, and once that limit is reached, there is an additional dividend allowance available.
For the 2024/25 tax year, the dividend allowance stands at £500 which is a decrease from the 2023/24 dividend allowance of £1,000.
Capital gains tax annual exempt allowance for the 24/25 tax year
Capital gains tax (CGT) is levied when you sell, gift, exchange, or otherwise dispose of an asset and generate a profit or ‘gain’.
CGT is based on the gain made from the transaction and not the amount of money received for the asset when it’s sold.
Most individuals who are UK residents are permitted to make a certain level of capital gains each tax year before they are required to pay CGT and are given an annual exempt amount.
The CGT allowance is known as the annual exempt amount (AEA) or the annual exemption which has been reduced from the previous year and is now worth £3,000 per person.
Capital Gains Tax rates 2024/2025 tax year
The rates of capital gains tax for the 24/25 tax year see one change in cases where you sell a residential property and you are a higher or additional rate tax payer.
In the 24/25 tax year if your taxable income falls within the basic rate of tax, you will be subject to a CGT rate of 10% (or 18% if the asset being sold is a residential property) on any capital gains that fall within the remaining basic rate band.
If you have income that is taxable at the higher rate of 40% and/or the additional rate of 45%, your capital gains will be taxed at a rate of 20% (or 24% if the asset being sold is a residential property).
The additional or higher rate taxpayer rate payable on the sale of residential property has been reduced from April 6 from 28% down to 24%.
Inheritance Tax Allowance for the 24/25 tax year
Inheritance tax is applicable when a person passes away and their estate exceeds the inheritance tax free threshold and is known as the nil rate band (NRB).
From 6 April 2024 individuals are entitled to an IHT allowance of £325,000. The IHT allowance can be potentially increased by an additional £175,000 if a family home is being transferred to children or grandchildren.
The IHT rate which becomes applicable after the nil rate band has been exceeded stands at 40% for the tax year 2024/2025.
National Insurance for 24/25 tax year
Starting from 6 April, the primary national insurance rate for employees will be further lowered from 10% to 8%. This reduction follows the previous decrease from 12% to 10% in January 2024.
For the self employed there’s another reduction in Class 4 national insurance contributions to 6%.
The elimination of class 2 national insurance contributions for the self employed will also take effect in April.
