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Tax Rates and Allowances 2025: What You Need to Know
If you’re a UK taxpayer, staying current with the latest tax rates and allowances is essential. This article contains the rates and allowances for the tax year 2024/25, which covers the period from 6th April 2024 to 5th April 2025. This means there have been changes to the tax rates and allowances that you must be aware of.
Overview of Tax Rates and Bands
Several key factors should be taken into account when determining tax rates and allowances for 2024/25. The following subsections provide an overview of the key details.
Income Tax Rates and Bands
The income tax rates and bands for the 2024/25 tax year are as follows:
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| Band | Taxable Income | Income Tax Rate |
|---|---|---|
Personal Allowance | Up to £12,570 | 0% |
| Basic Rate | £12,571 to £50,270 | 20% |
| Higher Rate | £50,271 to £125,140 | 40% |
| Additional Rate | Over £125,140 | 45% |
National Insurance Contributions
National Insurance contributions are pivotal in your tax considerations. For detailed insights on your obligations, especially if you’re self-employed, this comprehensive guide on Self-employed National Insurance can be invaluable.
The rates for the 2024/25 tax year are as follows:
| Earnings | Class 1 National Insurance Rate |
|---|---|
| Up to £242 per week | 0% |
| £242 to £967 per week | 8% |
| Over £967 per week | 2% |
Class 2 National Insurance contributions are payable by self-employed individuals with a small profit threshold of £6,725 per year. Class 4 National Insurance contributions are payable on profits between £12,570 and £50,270 per year at 6% and 2% for earnings above £50,270.
Dividend Taxation
From 6th April 2024 to 5th April 2025, the dividend allowance is set to be £500. Further dividend tax rates and allowances for the 2024/25 tax year are as follows:
| Tax Band | Tax Rate on Dividends over the Allowance |
|---|---|
| Basic Rate | 8.75% |
| Higher Rate | 33.75% |
| Additional Rate | 39.35% |
Capital Gains Tax
Capital gains tax is payable on any profits you make when you sell assets such as property or shares—the Annual Exempt Amount (AEA): £3,000 for individuals, £1,500 for most trusts.
The rates for the 2024/25 tax year are as follows:
| Asset Type | Taxpayer Category | CGT Rate Before 30/10/2024 | CGT Rate After 30/10/2024 |
| Residential Property | Basic Rate | 18% | 18% |
| Higher/Additional Rate | 28% | 24% | |
| Other Chargeable Assets | Basic Rate | 10% | 10% |
| Higher/Additional Rate | 20% | 20% | |
| Carried Interest | All Taxpayers | 20% | 32% |
| Trustees & Personal Reps | All Taxpayers | 20% | 24% |
| Business Asset Disposal & Investors’ Relief | All Taxpayers | 10% | 10% |
Corporation Tax
If you run a business, you must know the corporation tax rates and allowances for the 2024/25 tax year. The main corporation tax rate is 25%, while the small profits rate is 19%.
| Profit Range | Tax Rate | Effective Rate | Notes |
| £0 – £50,000 | 19% | 19% | Small Profits Rate (SPR) |
| £50,001 – £250,000 | 25% (Main Rate) | Between 19% and 25% | Marginal Relief applies |
| Over £250,000 | 25% | 25% | Main Rate |
Ring Fence Companies
Companies involved in oil extraction or holding rights in the UK or the UK Continental Shelf are subject to a special corporation tax regime called Ring Fence Corporation Tax (RFCT). The tax rates are as follows:
| Profit Range | Tax Rate | Effective Rate | Notes |
| £0 – £50,000 | 19% | 19% | Small Profits Rate |
| £50,001 – £250,000 | 30% | Between 19% and 30% | Marginal Relief applies |
| Over £250,000 | 30% | 30% | Main Rate |
In addition to these rates, ring fence profits are subject to a 10% Supplementary Charge, which increases the effective tax rate on profits from oil extraction activities.
Tax Allowances and Reliefs
As a taxpayer, it is important to understand the various tax allowances and reliefs available to you. These can help to reduce your tax bill and increase your take-home pay. In this section, we will discuss the different types of tax allowances and reliefs that are available for the tax year 2024.
Personal Allowances
The personal allowance is the income you can earn before paying income tax. For the tax year 2024/25, the personal allowance is £12,570, the same as in the previous tax year. However, if you earn over £100,000, your allowance will be reduced by £1 for every £2 earned above that threshold, phasing out entirely when your income reaches £125,140.
Savings Allowances
You may be eligible for a tax-free savings allowance if you have savings. For the 2024/25 tax year, the personal savings allowance is £1,000 for basic rate taxpayers and £500 for higher rate taxpayers. If you are a basic rate taxpayer, you can earn up to £1,000 in savings interest tax-free. If you are a higher-rate taxpayer, you can earn up to £500 in savings interest tax-free. Additional rate taxpayers do not receive a personal savings allowance.
In addition to the personal savings allowance, there is a starting rate for savings. This allows people with low non-savings income (less than £5,000) to earn up to £5,000 in savings interest tax-free.
Marriage and Civil Partnerships
You may be eligible for a tax break if you are married or in a civil partnership. The marriage allowance allows one partner to transfer up to 10% of their personal allowance to the other partner, potentially reducing their tax bill. To be eligible, the person transferring the allowance must have an income of £12,570 or less, and the receiving partner must be a basic-rate taxpayer.
In addition to the marriage allowance, there is the married couple’s allowance. This is available to couples where at least one partner was born before 6 April 1935. The allowance can reduce your tax bill by up to around £1,092 for the 2024/25 tax year, and at least one partner must pay income tax at the basic or higher rate to claim it.
Miscellaneous Allowances
Several other tax allowances and reliefs are also available, including the blind person’s allowance, which is worth £3,070 for the 2024/25 tax year. This is available to those who are registered blind or severely sight-impaired.
If you have self-employed income, you may be eligible for the trading or property allowance. The trading allowance allows you to earn up to £1,000 tax-free from self-employment, while the property allowance will enable you to earn up to £1,000 tax-free from rental income. However, if a trading allowance is being claimed, then you won’t be able to claim any expenses against the rental property or self-employment income.
Finally, rent-a-room relief is available to those who rent out a room in their home. The relief allows you to earn up to £7,500 tax-free from renting a room.
£3,750 if a joint owner earns from renting the property. The limit applies even if you let property for less than 12 months.
Pensions and Retirement
Regarding retirement savings, many opt for private pensions. Understanding how to make pension contributions through a limited company can offer tax-efficient ways to plan for retirement.
State Pension Contributions
The state pension is a regular payment from the government that you can receive when you reach state pension age. The amount you receive depends on your National Insurance contributions. You can check your National Insurance record and get an estimate of your state pension on the government’s website.
Private Pensions
Private pensions are another option for saving for retirement. These are pensions that you arrange yourself, rather than through your employer. There are two main types of private pension: defined benefit and defined contribution.
With defined benefit pensions, your employer guarantees you a certain income level when you retire, based on your salary and years of service. With defined contribution pensions, you build up a pot of money over time, which you can then use to buy an annuity or draw down income in retirement.
Pension Taxation
Regarding pensions, there are a few tax considerations to keep in mind. Firstly, you get tax relief on your contributions, meaning the government raises your pension pot with extra money. The amount of tax relief you get depends on your income tax band.
Secondly, there are limits on how much you can save into a pension each year without incurring tax charges. These are known as pension allowances. The annual allowance for most people is currently £60,000, but this may be reduced if you have a high income.
Finally, when you come to take your pension, you may have to pay income tax on the money you receive. This is because your pension is treated as income for tax purposes. The amount of tax you pay will depend on your total income in retirement.
Taxation in Different Regions of the UK
Regarding taxation in the UK, different regions have their own tax rates and allowances. Here’s a breakdown of the tax rates and allowances in each area.
England
In England, the introductory income tax rate is 20%, the higher rate is 40%, and the additional rate is 45%. The personal allowance for the tax year 2024/25 is £12,570. You’ll pay tax at the basic rate if you earn between £12,571 and £50,270. If you earn between £50,271 and £150,000, you’ll pay tax at the higher rate. If you earn over £150,000, you’ll pay tax at the additional rate.
Scotland
Scotland’s income tax rates differ from those in the rest of the UK. The starter rate is 19%, the basic rate is 20%, the intermediate rate is 21%, the higher rate is 42%, and the advanced rate is 45%. The personal allowance for the tax year 2024/25 is also £12,570. You’ll pay tax at the starter rate if you earn between £12,571 and £14,732. You’ll pay tax at the basic rate if you earn between £14,733 and £25,688. You’ll pay tax at the intermediate rate if you earn between £25,689 and £43,662. If you earn between £43,663 and £150,000, you’ll pay tax at the higher rate. If you earn over £150,000, you’ll pay tax at the advanced rate.
Wales
The tax rates in Wales are the same as those in England, but the Welsh government has the power to set its own rates of income tax. The personal allowance for the tax year 2024/25 is also £12,570.
Northern Ireland
The tax rates in Northern Ireland are the same as those in the rest of the UK, but the Northern Ireland Assembly has the power to set its own rates of income tax. The personal allowance for the tax year 2024/25 is also £12,570.
Tax Considerations for Various Groups
Share fishermen and volunteer development workers also have specific tax considerations to remember. If you are a share fisherman, you will be taxed on your share of the profits of the fishing boat. The tax rate will depend on whether you are classified as self-employed or employed. Volunteer development workers, on the other hand, may be eligible for certain tax benefits, such as a reduction in their tax bill.
Non-residents may also need to consider their tax obligations. If you are a non-resident, you will only be taxed on income earned in the UK. Depending on your circumstances, you may also be eligible for certain tax reliefs.
Here are a few key tax considerations for each group:
Self-Employed Individuals
- You will need to pay Class 2 and Class 4 National Insurance contributions.
- You may be eligible for certain tax reliefs, such as the annual investment allowance.
- You can use an income tax calculator to estimate your tax bill.
Share Fishermen and Volunteer Development Workers
- Share fishermen will be taxed on their share of the profits of the fishing boat.
- Volunteer development workers may be eligible for certain tax benefits.
Non-Residents
- You will only be taxed on income that is earned in the UK.
- You may also be eligible for certain tax reliefs, depending on your circumstances.
Tax Codes and Compliance
As a taxpayer, it is important to understand your tax code to ensure you are paying the correct amount of tax. Your tax code is used by your employer or pension provider to calculate how much tax to deduct from your pay or pension. You can find your tax code on your payslip or pension statement.
Understanding Your Tax Code
Your tax code comprises numbers and letters, usually based on your allowance. The standard personal allowance for the 2024/25 tax year is £12,570. This means you can earn up to £12,570 before paying income tax. However, your tax code may be different depending on your circumstances. For example, if you receive child benefit, your tax code may be adjusted to consider this.
Self-Assessment and Returns
Completing a self-assessment tax return is a crucial annual task for many. For a step-by-step guide on navigating this process, consider this thorough overview on how to complete your self-assessment tax return.
Inheritance Tax and Estate Planning
Inheritance tax is a tax on the estate (the property, money, and possessions) of someone who has died. If you are the personal representative of someone who has passed, you may need to pay inheritance tax on their estate. The amount of inheritance tax due depends on the estate’s value and whether any exemptions or reliefs apply.
The standard nil-rate band for the 2024/25 tax year is £325,000. An additional Residence Nil-Rate Band of up to £175,000 may apply if the deceased leaves their home to direct descendants, potentially increasing the total tax-free allowance to £500,000.
Staying compliant with tax laws and regulations is essential to avoid penalties and fines. If you have any questions or concerns about your tax code, self-assessment tax return, or inheritance tax, you should seek professional advice from a qualified tax advisor.
Closing
Staying informed about the latest tax rates and allowances for the 2024/25 tax year is essential for effective financial planning and ensuring compliance with UK tax laws. Understanding these changes allows you to maximise available reliefs and avoid unexpected liabilities. If you have questions or need tailored guidance, consider consulting a qualified tax advisor to help you make the most of your financial decisions.