The tax year 2024/2025 brings several updates, adjustments, and new thresholds impacting income tax, National Insurance (NI), dividends, capital gains, and savings. Let’s jump into the key highlights:
Personal Allowance
The Personal Allowance has remained at £12,570. Everyone is entitled to earn this amount tax-free, unless you earn over £100,000. More on that below.
National Insurance Thresholds
National Insurance Contributions (NIC’s) are taken from your pay first. The NI threshold for the tax year 2024/2025 aligns with income tax, set at £12,570 annually. Employees will start paying Class 1 National Insurance contributions on earnings above this threshold. The rate for employees is 8% on earnings up to £50,270.
All earnings over this amount are taxed at 2%.
For the self-employed, 2024/25 is the first year you don’t pay Class 2 NIC’s. Only Class 4 apply and are taxed at 6% on income between £12,571 and £50,270. They are then taxed at 2% on everything over this amount.
Income Tax Brackets
For the tax year 2024/2025, income tax brackets have been frozen. The basic rate remains at 20%, applicable to earnings between £12,571 and £50,270. Higher rate taxpayers will face a 40% tax on income between £50,271 and £125,140, while the additional rate of 45% applies to income exceeding £125,140.
Dividend Allowances and Tax Brackets
The dividend allowance for the tax year 2024/2025 has been reduced to £500. Beyond this threshold, dividend income will be taxed at different rates depending on the individual’s tax band.
- 8.75% basic rate.
- 33.75% higher rate.
- 39.35% additional rate.
Capital Gains Allowances
The capital gains tax allowance has been increased to £3,000 for individuals and trustees, providing opportunities for tax-efficient investments. Gains above this threshold will be subject to capital gains tax at 10% for basic rate taxpayers and 20% for higher and additional rate taxpayers, with exceptions for specific assets and reliefs.
This increases to 18% and 24% if the property disposed of is residential property.
Savings Allowances
Savings allowances for the tax year 2024/2025 remain unchanged. Basic rate taxpayers can earn up to £1,000 in savings income tax-free, while higher rate taxpayers have a £500 allowance. Additional rate taxpayers do not receive a savings allowance.
Personal Allowance Tapering
The Personal Allowance begins to taper off for individuals earning over £100,000, reducing by £1 for every £2 of income above this threshold until it reaches zero.
Minimum Wage
The new increased minimum wages are as follows;
- National Living Wage – £11.44 per hour
- 18-20 year old rate – £8.60
- 16-18 year old rate – £6.40
- Apprentice rate – £6.40
Conclusion
Staying informed about the latest tax allowances and exemptions is essential for limited companies & Sole Traders to optimise their financial strategies, minimise tax liabilities, and ensure compliance with regulatory requirements.
As always, the aim is to pay the smallest amount of tax you can whilst optimising your specific circumstances.
