April 6 2024 marked the start of the new 2024/25 tax year, when various changes came into effect that could have an impact on your finances.
Here, we explain how tax allowances and thresholds work, what they are for the 2024/25 tax year, and how they could affect you.
Personal tax allowance
Your personal tax allowance is the amount of money you can earn, or income you can receive, without paying tax. In the 2024/25 tax year it’s £12,570 – the same as it was in the last tax year. This means if you earn or receive less than £12,570 between 6 April 2024 and 5 April 2025, you won’t have to pay any tax.
Your income could include rental income, wages or earnings from freelance work, interest from savings and/or dividends from shares or investment funds you own.
Not all the money you receive is taxable. So that means you could receive more than £12,570 a year and still not pay tax.
Here’s a list of income that you could have to pay tax on:
- Your wages if you’re employed, or profits from being self employed
- Interest from savings accounts, over a certain amount
- Dividends from shares, over a certain amount (a dividend is a share of the profit that a company makes)
- Pension payments, including your state pension
- Certain state benefits, including Jobseeker’s Allowance and Carer’s Allowance.
Once you earn more than £100,000, you start to lose the personal allowance. You lose it at a rate of £1 for every £2 you earn above the £100,000 threshold. If you earn £110,000 a year you get a personal allowance of £7,500 a year.
If you earn £120,000 a year, you get a personal allowance of £2,500 a year. And once you earn over £125,140 a year, you don’t get the personal allowance at all.
Starting rate for savings
If you’re on a low income, you can also earn interest tax-free through the starting rate for savings. It’s an allowance that means you can receive up to £5,000 a year in savings interest without paying tax. However, every £1 you receive from income sources that aren’t savings reduces your starting rate allowance by £1. This means that If you earn less than £18,570 a year from income and savings interest, your savings interest won’t be tax-free.
The easiest way to explain this is through an example. If you earn £12,570 a year and receive £4,000 a year in interest from your savings (which would mean you have a lot of savings!) you wouldn’t pay any tax. That’s because you would qualify for the full savings starting rate of £5,000 and, if you’re a basic rate taxpayer, you’ll also benefit from the personal savings allowance which enables you to earn £1,000 in interest tax free.
This means that if you were to earn £15,500 a year and receive £2,999 a year in savings interest, so your annual income would be £18,499, you would still be able to get interest on your savings tax free. But if you were to earn £16,000 a year and get £2,999 a year in savings interest, you wouldn’t qualify for the savings starter rate, as you’d have exceeded your limit for tax-free savings.
Income tax
Basic rate taxpayer
If you’re a basic rate taxpayer, you pay income tax at a rate of 20%. You only pay that on your income or earnings above £12,570, not on the whole lot.
You pay this rate if you live in England, Wales and Northern Ireland. Scotland sets its own income tax thresholds and rates. Its personal allowance is the same as England, Wales and Northern Ireland, at £12,570, but it has a lower rate of income tax of 19% on money you earn between £12,571 and £14,732. This rate is called the starter rate.
In Scotland, you pay tax at the basic rate (20%) on earnings or income above £14,733 and below £25,688.
Higher rate taxpayer
You’ll pay a higher rate of tax on money you earn or receive over a certain threshold. The threshold depends on where in the UK you live. In Scotland, There’s an intermediate rate of tax of 21% on earnings between £25,689 and £43,662.
In England, Wales and Northern Ireland, you pay tax at 40% on money you earn or receive between £50,271 and £125,140. You only pay tax at 40% on that part of your income. If you’re a ‘higher rate taxpayer’, you actually pay tax at two different rates (four in Scotland).
In Scotland, the threshold for the 41% higher rate of tax is £43,663.
Additional rate taxpayer
If you earn more than £125,140 a year, you currently pay tax at 45% in England, Wales and Northern Ireland. If you live in Scotland, you’ll pay 46%.
National Insurance
National Insurance rates are changing considerably in the 2024/25 tax year.
Class 1 National Insurance contributions, which are made on your behalf by your employer on earnings between £12,584 and £50,284, were cut in January from 12% to 10%. Earnings above £50,284 will continue to be taxed at 2%.
Class 2 National insurance was abolished entirely in April 2024, and Class 4 contributions have been reduced from 9% to 8%. Read more in our article Changes to National Insurance: will you pay less?
Pensions
If you receive the full new State Pension, your annual income increased by £902.20, to £11,502.40 in the 2024/25 tax year. This is a 8.5% increase from the previous year, with the rise in line with September’s earnings growth figure. If you get the basic State Pension, the maximum you can receive in 2024/25 is £8,814. Read more in our article How the State Pension works.
The Pension Lifetime Allowance – the limit on how much you can build up in pension benefits over your lifetime while still enjoying the full tax benefits – no longer applies in the 2024/25 tax year. You can read more about this in What is the pension Lifetime Allowance?
The Pension Annual Allowance was increased from £40,000 to £60,000 in the 2023/24 tax year and remains at this level in the 2024/25 tax year. Find out more about pension allowances in our guide How do pension allowances work?
If you’re 50 or over and have a defined contribution pension, you can get free guidance on the options available to you from the Government’s Pension Wise service. You may also want to get in touch with the Pensions Advisory Service.
However, if you want personal recommendations or advice about your specific circumstances, you’ll need to seek professional financial advice. You can find a local financial advisor on VouchedFor or Unbiased, or for more information, check out our guides on How to find the right financial advisor for you or How to get advice on your pension.
If you’re considering seeking professional financial advice on the options available to you, we’ve partnered with nationwide independent advice firm Fidelius to offer Rest Less members a free initial consultation with a qualified financial advisor. There’s no obligation, however if the adviser feels you’d benefit from paid financial advice, they’ll talk you through how that works and the charges involved.
Fidelius are rated 4.7 out of 5 from over 1,500 reviews on VouchedFor, the review site for financial advisors.
Inheritance Tax
The current Inheritance Tax threshold, called the ‘nil-rate band’, is at £325,000 in the 2023/24 tax year, unchanged from the previous year. It has stood at this level since April 2009, and will continue to be frozen at this level until at least 2028, seeing more people paying this tax on death due to rising property prices in many areas of the country.
There are things you may be able to do to reduce the amount of Inheritance Tax you pay. For example, you can give away up to £3,000 each tax year without this money being subject to your estate for Inheritance Tax purposes. If you’re married or in a civil partnership, you can make as many gifts to your spouse or partner as you want during your lifetime, free from IHT. Read more in our article Which gifts are exempt from Inheritance Tax?
Other ways you might be able to reduce your liability to Inheritance Tax include taking out a life insurance policy that’s written in trust. Find out more in our article Six ways to reduce inheritance tax. Bear in mind, though, that some of these options may not be suitable for you, so you should seek professional financial advice if you’re looking for specific recommendations based on your personal circumstances. You can find a local financial advisor on VouchedFor or Unbiased, or for more information, check out our guide How to find the right financial advisor for you.
Capital Gains Tax
This allowance is essentially the amount of profit you can make (minus certain costs) from selling assets, such as investments or a property you let out, before you have to pay capital gains tax.
The annual tax-free capital gains exemption, which stood at £12,300 in the 2022/23 tax year, was reduced to £6,000 in the 2023/24 tax year. This figure halves again the 2024/25 tax year to £3,000.
This is a sharp decrease, and means that many people may have to pay a large amount of tax on their investments when they sell them. Current capital gains tax rates are 18% and 20% (or 20% and 28% for property).
Jason Hollands, managing director at investing platform Bestinvest, said: “Regular disposals of investments each year to take advantage of the annual capital gains tax exemption can protect you against a hefty future CGT bill when you come to dispose of an investment.
“If you are married or in a civil partnership, then inter-spousal transfers can be used to make sure both partners’ allowances are used optimally. When shares, for instance, are transferred from one spouse to another, it is assumed they are given at cost value and therefore don’t trigger a tax liability. The CGT allowance for that year of the spouse who receives the transfer then comes into play.”
Dividends
The Dividend Allowance, which was first introduced in 2016, was halved from £2,000 in 2022/23 to £1,000 in the 2023/24 tax year, and was halved again to £500 in the 2024/25 tax year. The rates remain unchanged:
Dividend tax rates 2023/24
| Basic rate | Higher rate | Additional rate |
| 8.75% | 33.75% | 39.35% |
Source: Gov.uk
You’ll pay dividend tax if you receive dividend income from shares, which falls outside of your personal allowance (£12,570 in 2024/25) and the dividend allowance (£500 in 2024/25).
Rest Less Money is on Instagram. Check out our account and give us a follow @rest_less_uk_money for all the latest Money News, updated daily.
* Links with an * by them are affiliate links which help Rest Less stay free to use as they can result in a payment or benefit to us. You can read more on how we make money here.
Thinking of Investing in Tax-Free Gold?
Speak with The Royal Mint’s wealth management team today and discover how you could diversify your investment portfolio, hedge against inflation, and secure your family’s future with tax-free gold.