UK Tax Rates, Thresholds, and Allowances 2023/24: Insights for the Latest Tax Years

Navigating the complexities of the UK tax system can be daunting, but by understanding the key rates, thresholds, and allowances for the 2023/24 and 2024/25 tax years, you can make informed decisions and better plan your finances. In this article, we’ll discuss the important developments and adjustments for income tax rates, personal allowances, and various thresholds that the government has introduced for these tax years.

For the 2023/24 tax year, there are three main marginal income tax bands in England, Wales, and Northern Ireland: the 20% basic rate, the 40% higher rate, and the 45% additional rate. Your personal allowance for this period is £12,570 per annum. However, keep in mind that your personal allowance begins to shrink once your earnings exceed £100,000.

Moving on to the 2024/25 tax year, the rates and allowances for income tax bands are yet to be announced by the UK government. It’s crucial that you stay updated on any changes and new legislation to ensure your tax planning remains accurate and compliant. So, as the tax year approaches, be sure to monitor official sources for any updates on rates, thresholds, and allowances.

UK Tax Year Overview 2023/2024

For the 2023/24 tax year, the UK tax system has defined three primary income tax bands for residents of England, Wales, and Northern Ireland:

• 20% Basic Rate: Applies to incomes between £12,571 and £50,270.
• 40% Higher Rate: Applicable for incomes between £50,271 and £125,140.
• 45% Additional Rate: For incomes over £125,140.

The Personal Allowance is set at £12,570 per year. This allowance decreases once your annual earnings exceed £100,000, shrinking by £1 for every £2 earned above this threshold. Businesses, including small businesses, can find tailored accounting support here, while larger, more complex entities like limited companies can explore specialized accounting services here.

Looking Ahead to the 2024/25 Tax Year The rates and allowances for the 2024/25 tax year are yet to be announced. To ensure accurate tax planning and compliance, it is vital to stay informed about any updates or new legislation. For the latest information on tax rates and allowances, you can check out resources like Tax Rates and Allowances 2023/24.

Additional Considerations

• Savings Income: A starting rate of 10% is applicable for savings income amounts up to £5,000.
• Ultra-Low Emission Cars: From 2025/26, tax rates for ultra-low emission cars (1 to 74 grams per km) will be capped at 20%, increasing to 21% in the following two tax years.

Income Tax Rates and Personal Allowances

The standard Personal Allowance for the 2023/24 tax year is £12,570, which is the amount of income you don’t have to pay tax on. This allowance can be higher if you claim Marriage Allowance or Blind Person’s Allowance. Please note, if your yearly income exceeds £100,000, your Personal Allowance decreases by £1 for every £2 of income above this limit, potentially reducing it to zero.

For more specific information on tax rates, thresholds, and allowances, refer to UK Tax Rates, Thresholds, and Allowances.

The tax rates and thresholds for the 2023/24 tax year are:

• Basic Rate: 20% on income between £12,571 and £50,270.
• Higher Rate: 40% on income between £50,271 and £150,000.
• Additional Rate: 45% on income above £150,000.

Looking Ahead: The 2024/25 Tax Year

For the 2024/25 tax year, the tax rates and thresholds are currently projected to remain the same:

• Basic Rate: 20% on income between £12,571 and £50,270.
• Higher Rate: 40% on income between £50,271 and £150,000.
• Additional Rate: 45% on income above £150,000.

It’s essential to plan accordingly and stay informed about any changes that could impact your tax obligations.

Footnotes

Income Tax Bands

In the UK, for the 2023/24 tax year, there are three income tax bands that affect your taxable income. These bands determine the rate at which you’ll be taxed based on your earnings. As you progress through the bands, the tax rate you pay will increase.

The personal allowance is tax-free up to £12,570. As long as your total income is below this threshold, you won’t pay any tax. Remember that this amount can go down depending on your income, shrinking by £1 for every £2 earned above £100,000.

The basic rate tax band is for those earning between £12,570 and £50,270. Income within this range is taxed at 20%. For example, if you earn £35,000, the taxable amount minus your personal allowance is £22,430 (£35,000 – £12,570). Therefore, you’ll pay 20% tax on these £22,430.

The higher rate tax band applies to those earning between £50,271 and £150,000. Income in this range is taxed at 40%. Note that this rate is applied only to the income exceeding the basic rate threshold. So, if you earn £60,000, the tax will be 20% on the first £50,270 and 40% on the remaining £9,730.

Lastly, the additional rate tax band is for those earning over £150,000. This band applies a tax rate of 45% to your income above that threshold. As with the higher rate, this only affects the amount exceeding the £150,000 limit.

When calculating your taxes, don’t forget to consider any factors that could affect your personal allowance or applicable tax bands. Stay informed on the latest tax rates and allowances to accurately manage your tax obligations.

Footnotes

National Insurance Contributions

National Insurance contributions (NICs) are a vital part of the UK tax system. They contribute to your entitlement to certain state benefits, including the State Pension. For a comprehensive understanding of NICs, especially for self-employed individuals, visit Self-Employed National Insurance Explained.

Class 1 NICs for Employees

As an employee, your National Insurance is divided into two types:

• Primary Contributions: Paid by you.
• Secondary Contributions: Paid by your employer.

The thresholds for these contributions in the 2023/24 tax year are as follows:

• Weekly Earnings Threshold: £242
• Monthly Earnings Threshold: £1,048
• Annual Earnings Threshold: £12,570

NICs for Self-Employed Individuals

For the self-employed, Class 2 and Class 4 NICs are applicable. Class 2 contributions are a fixed weekly amount, while Class 4 contributions are a percentage of annual taxable profits.

Looking Ahead

The UK government has maintained the income tax Personal Allowance, higher rate threshold, and National Insurance contributions Upper Earnings Limit for the years 2022/2023 through to 2025/2026. For detailed information on rates and thresholds for other tax years, check out the HMRC website.

Staying updated on current rates and thresholds is crucial as they directly impact your tax liability and financial planning. For further guidance on National Insurance contributions or the UK tax system, consulting a qualified professional, such as a tax advisor or accountant, is advisable.

Capital Gains Tax

For the 2023/24 tax year, the Capital Gains Tax (CGT) allowance is set at £6,000. This allowance is significant as it is the amount you can subtract from your taxable gain before applying the relevant tax rate. For an in-depth understanding of how CGT may affect your financial situation, explore Capital Gains Tax.

Calculating CGT

Let’s consider an example: if you realize a £12,000 gain from selling an asset, like property, you can deduct the £6,000 allowance, leaving £6,000 as the taxable gain.

The CGT rates for 2023/24 vary based on the asset type and your income tax band:

• Property Gains: 18% for basic-rate taxpayers; 28% for higher-rate taxpayers.
• Other Assets (e.g., shares): 10% for basic-rate taxpayers; 20% for higher-rate taxpayers.

Examples of CGT Calculation:

• For a basic-rate taxpayer with a property gain of £12,000: – Taxable Gain: £12,000 – £6,000 (CGT allowance) = £6,000 – CGT Due: £6,000 x 18% = £1,080
• For a higher-rate taxpayer with an asset gain of £12,000: – Taxable Gain: £12,000 – £6,000 (CGT allowance) = £6,000 – CGT Due: £6,000 x 20% = £1,200

Looking Ahead: Changes in 2024/25

It’s important to note that the CGT allowance is scheduled to decrease to £3,000 in the 2024/25 tax year. This change underscores the need for careful planning of your asset disposals and tax strategy to minimize potential tax liabilities.

Other Allowances and Reliefs

In addition to the standard Personal Allowance, there are other forms of tax allowances and reliefs available to UK taxpayers. For more information on allowances like Gift Aid and Marriage Allowance, visit More Than Accountants.

By understanding and utilising these allowances and reliefs, you can effectively decrease your tax liability and make the most of your hard-earned income.

Gift Aid

Gift Aid allows charities to claim back the basic rate tax you’ve already paid on your donations. When making a donation, you must ensure that you’ve paid enough tax to cover the amount the charity will claim. For example, if you donate £100, the charity can claim back an extra £25 from HM Revenue & Customs (HMRC).

To make use of Gift Aid, simply tick the Gift Aid box on the donation form, provide a written statement that you want to use Gift Aid, or inform the charity that you wish to donate through Gift Aid. Keep in mind that higher-rate taxpayers can also claim back the difference between the basic and higher rate on their donations through their Self Assessment tax returns.

Marriage Allowance

Marriage Allowance is a tax relief available to married couples and those in a civil partnership. If one partner earns less than the Personal Allowance (£12,570 for 2023/24), they can transfer up to 10% of their unused Personal Allowance to their spouse or civil partner. This can result in tax savings of up to £252 for the 2023/24 tax year.

To be eligible for Marriage Allowance, you must meet the following criteria:

• You are married or in a civil partnership
• One partner earns less than the Personal Allowance
• The other partner is a basic rate taxpayer

To apply for Marriage Allowance, you can visit the HMRC website and follow the instructions provided. Once your application is approved, your Personal Allowances will automatically be updated.

By understanding and utilising these allowances and reliefs, you can effectively decrease your tax liability and make the most of your hard-earned income.