Tax rates 2024/25

Tax rates 2024/25
Break down the tax you’ll pay

Certainty in life often boils down to two things: death and taxes. While taxes are inevitable, the rates we pay can shift quickly. This article provides a comprehensive overview of the 2024/25 tax year, detailing income tax thresholds, personal allowances, national insurance, and other key updates.

Free Income Tax Calculator

To check what your take-home pay should be, including pension contributions and student loan repayments, use our free Income Tax Calculator.

What’s my personal tax allowance?

Everyone is entitled to a personal allowance—the portion of income you can earn without being subject to income tax. This portion is completely tax-free.

If your earnings exceed your personal allowance, you’ll only pay income tax on the amount above the threshold. This taxable portion is subject to the applicable income tax rates, while your allowance remains untaxed.

Are you married, in a civil partnership, or earning interest on savings? Be sure to check the additional details below.

What’s my personal tax allowance?

Q – Married or in a civil partnership?

A – If you answered yes and both you and your partner were born on or after 6 April  1935, you could qualify for the Marriage Tax Allowance. This benefit enables couples to transfer a portion of their personal allowance to their partner.

For the 2024/25 tax year, the Marriage Tax Allowance amounts to £1,260, offering a potential tax reduction of up to £252.

On the other hand, if either of you was born before 6 April 1935, you might be eligible for a different allowance called the Married Couple’s Allowance, which is also applicable to civil partners. To determine your eligibility and calculate your benefit, you can use the Government’s Married Couple’s Allowance calculator.

This allowance deducts 10% of its value directly from your annual income tax bill. If you were married before December 5, 2005, the calculation is based on the husband’s income. For marriages or civil partnerships from December 5, 2005, onward, the income of the higher earner is used instead.

Q – Forgotten about the personal savings allowance?

A – Since April 2016, savings providers have been paying interest without deducting tax, thanks to the introduction of the personal savings allowance (PSA). The PSA allows basic-rate taxpayers to earn up to £1,000 in annual interest tax-free, while higher-rate taxpayers enjoy a £500 tax-free limit. However, those in the additional rate category do not qualify for this allowance.

The savings allowances will remain unchanged for the 2024/25 tax year.

If you’re a low-income earner, you may qualify for an additional tax-free benefit known as the starting rate for savings income. This allows you to earn up to £5,000 annually in interest without paying tax, provided your total income is less than £12,570 for the current tax year. However, for every pound you earn above this threshold, your starting rate allowance decreases by the same amount. For more details, check out our comprehensive Tax-Free Savings Guide.

What income tax band am I in?

Understanding your personal tax-free allowance is key to calculating your taxable income. Any earnings exceeding this threshold will be subject to income tax. For the 2024/25 tax year, residents of England, Wales, and Northern Ireland are taxed according to three marginal income tax bands: the basic rate at 20%, the higher rate at 40%, and the additional rate at 45%. Keep in mind that your personal allowance begins to decrease once your income surpasses £100,000.

Marginal tax bands ensure you only pay the applicable tax rate on income within each band. For instance, if your earnings fall within the 40% tax bracket, this rate applies solely to the portion of your income in that band. The remainder of your earnings will be taxed at lower rates, such as 20% or 0%, depending on the amount.

In Scotland, the system features six marginal tax bands: the starter rate at 19%, the basic rate at 20%, the intermediate rate at 21%, the higher rate at 42%, the new advanced rate at 45%, and the top rate at 48%.

I live in England, Wales or Northern Ireland – what’s my income tax rate for 2024/25?

(1) Personal allowance drops by £1 for every £2 earned between £100,000 and £125,140.

I live in Scotland – what’s my income tax rate for 2024/25?

(1) Personal allowance drops by £1 for every £2 earned between £100,000 and £125,140.

Q – Do you submit self-assessment tax returns?

A – The usual deadline for filing your self-assessment tax return is 31 January. For the 2023/24 tax year, which concludes on 5 April 2024, the submission deadline is 31 January 2025.

• What happens after I’ve filed my tax return?

Once you submit your tax return, you’ll receive your tax bill.

• For paper returns: Your bill will be sent to you by post.
• For online returns: You can view your bill in two ways:
  1. Before submission: Use the “View my calculation” section to see an estimate.
  2. After submission: Check your final tax calculation. Note that it may take up to 72 hours for the final amount to appear in your account.

The amount you owe will appear as the “balancing payment” on your bill. If you’ve already made any payments in advance for the current tax year, deduct those amounts from the balance to determine your remaining payment.

• Can I get help to file my tax return?

If you need help filling in your self-assessment return, you can:

• Appoint someone to help you (such as an accountant or a friend).
• Watch HM Revenue & Customs’ (HMRC) videos on how to complete an online tax return.
• Contact it for help online or by telephoning 0300 200 3310.

National insurance is separate from income tax

Your income tax rate plays a significant role in determining your take-home pay, but it’s not the only factor at work.

In the UK, most employees also have to account for national insurance contributions. These deductions are applied to your earnings starting at age 16 and typically end once you reach the state pension age.

The table below highlights the current national insurance rates applicable to your earnings.

What’s my 2024/25 national insurance rate?

When you are employed, Class 1 National Insurance contributions are deducted directly from your regular payslip based on the applicable rate.

For those who are self-employed, Class 4 National Insurance contributions will be automatically calculated when you complete your self-assessment tax return for the 2024/25 tax year.

Q – What if I’m self-employed?

A – Understanding National Insurance Rules for the Self-Employed. If you’re self-employed, national insurance (NI) rules can be more complex compared to those for employees. Previously, self-employed individuals were required to pay two types of national insurance contributions (NICs): Class 2 and Class 4.

Since April, mandatory Class 2 contributions—previously set at £3.45 per week—have been abolished. However, individuals earning less than £6,725 annually still have the option to voluntarily pay Class 2 NICs. Doing so can help them qualify for certain benefits, such as the state pension. For those earning between £6,725 and £12,570 per year, national insurance credits are automatically provided, eliminating the need to pay this tax.

NICs are calculated based on your profits, determined by subtracting allowable expenses from your self-employment income above a specific threshold. Most self-employed individuals settle their national insurance payments through the self-assessment process.

What are my 2024/25 class 4 NICs?

Q – Had spells of employment where you didn’t pay national insurance?

A – If there are gaps in your national insurance history, such as earning below the national insurance threshold or living overseas, this may impact your eligibility for the full state pension.

To fill these gaps, you might be eligible to pay voluntary Class 3 National Insurance Contributions (NICs). For further details, check out our comprehensive guide on national insurance contributions.

What are my 2024/25 class 3 NICs?

Capital gains tax

Capital gains tax (CGT) is not a tax that most people encounter regularly, and in many cases, it may not apply at all. However, if you dispose of an asset valued over £3,000—whether through sale or gifting—you may be liable for CGT. This tax does not apply to primary residences, vehicles, or lottery/pool winnings, among other exemptions.

Each tax year, individuals benefit from an ‘annual exempt amount,’ allowing them to keep some of their gains tax-free. Any profits exceeding this threshold are subject to CGT.

2024/25 capital gains tax

You have 60 days from the completion of the sale of your property to report and pay your capital gains tax to HMRC.

Q – What if I give or sell assets to my spouse?

A – When transferring or selling assets to your spouse or civil partner, you are generally exempt from Capital Gains Tax (CGT), unless:

• You were separated and did not live together during the relevant tax year.
• The assets were subsequently sold through their business.

Transferring or selling assets to your spouse or civil partner can be a smart move if you expect to exceed the £3,000 CGT exemption limit for the 2024/25 tax year, but your partner’s exemption limit will not be reached. This way, neither of you will incur CGT.

If they later sell the asset…

Your spouse or civil partner may have to pay tax on any gain if they later sell the asset.

Dividend tax

There are two primary ways to profit from investing. One method is through capital gains, where the value of your shares rises, and you make a profit when you sell. The other is by receiving dividends.

Dividends function similarly to interest on a savings account. When a company generates a profit, it distributes a portion of it to shareholders. These payments can be made regularly or as a one-time payout. Just as savings interest has a personal allowance for tax-free earnings, there is also a tax-free dividend allowance.

For the 2024/25 tax year, the tax-free dividend allowance has been reduced to £500. However, the tax rates on dividends remain unchanged.

Any dividends you receive beyond this allowance will be taxed according to the rates listed below, unless your shares are held in a stocks & shares ISA, where dividends are always tax-free.

If your annual dividend income exceeds £500 outside of a stocks & shares ISA, you will be required to notify HMRC.

Dividend tax in 2024/25

Inheritance tax

Inheritance Tax (IHT) is a levy imposed on the estate of someone who has passed away. The amount of tax owed depends on the value of the deceased’s estate, which is calculated based on their assets (such as cash, investments, property, business, vehicles, and life insurance payouts), minus any liabilities or debts.

In general, there is no Tax to pay if:

• The estate’s value is under £325,000, OR
• The assets above £325,000 are left to a spouse, civil partner, charity, or a community amateur sports club.

If neither of these applies, the estate will be subject to a 40% tax on the amount exceeding the £325,000 threshold (or 36% if at least 10% of the estate’s value, after deductions, is donated to charity).

However, depending on your specific situation, the £325,000 threshold could be higher, potentially reaching £500,000 or even £1 million. For further details, our comprehensive inheritance tax guide provides additional insights.

Paying into a pension?

Pensions are highly attractive to savers primarily because of the tax advantages they offer. Typically, when you contribute to a pension, the government adds tax relief, boosting your investment.

How much tax relief do I get on my pension contributions?

Basic-rate taxpayers receive a 20% tax relief on pension contributions. Higher-rate taxpayers can claim up to 40%, with top-rate taxpayers potentially receiving up to 45%. However, higher and top-rate taxpayers must usually apply for this additional relief via their tax returns. Scottish taxpayers, who face slightly higher income tax rates (21%, 41%, or 46%) compared to the rest of the UK, must also claim any additional tax relief through their returns.

Even if you’re not a taxpayer – for instance, if your income is below the threshold for paying income tax – but you still contribute to a pension, you’ll still benefit from tax relief on your contributions. For every £80 you pay into your pension, the government adds £20, up to a contribution limit of £2,880. This means the total value of your pension contribution will be topped up to £3,600 by the state.

Is there a limit on tax relief I can get?

You can contribute up to your full earnings each tax year into your pension and benefit from tax relief, up to a maximum contribution limit of £60,000.

This maximum, known as the annual allowance, covers your personal contributions, the basic-rate tax relief added by the government, and any employer contributions.

However, for individuals earning over £260,000, the £60,000 annual allowance is subject to a reduction.

When does tax relief become tax charge?

The pension lifetime allowance is set to be fully removed starting 6 April 2024, meaning there will no longer be a limit on the total pension benefits you can accumulate while still benefiting from tax relief.

Additionally, the ‘lifetime allowance charge’ was abolished as of 6 April 2023. However, it’s important to note that the tax-free lump sum you can withdraw remains capped at £268,275.

To check what your take-home pay should be, including pension contributions and student loan repayments, use our free Income Tax Calculator.