The start of the 2024/25 tax year brings with it many changes. What are they and how do they affect you? In this article, we summarise everything you need to know. If you’d like us to help you become as tax efficient as possible, get in touch today.‍

National Insurance Contribution Changes for 2024/25‍

Employees‍

‍On annual earnings between £12,570 and £50,270, employees will now pay a rate of 8%. This has dropped from 10% and follows an unusual midyear drop from 12% to 10% on 6 January 2024.

In comparison to last year, this represents a significant drop from 12% to 8%. The table below shows the reduction in NIC rates for employees from 6 April 2023 to the present.

According to the Government, the average worker (earning £35,400 per annum) will save over £900 a year as a result.

In effect, this means that basic rate taxpayers will pay a combined (income tax + national insurance) rate of 28%, compared to 32% in early January 2024.

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Self-employed workers

The self employed see some Class 4 NIC changes. On annual profits between £12,570 and £50,270, you will now pay a rate of 6%. This has dropped from 9%.

You still don’t pay NICs on the first £12,570. For profits over £50,270, the rate remains at 2%.

According to the Government, this drop combined with the recent abolition of mandatory Class 2 NICs in the Autumn statement, will save the average self-employed person (earning £28,000 per annum) around £650 a year.

It is important to note, that despite these new National Insurance tax changes, some employees will still pay more overall (tax and national insurance) due to the freezing of the tax thresholds until April 2028. The IFS has found that, as a result, these National Insurance savings result in no gain overall when:

• Earning between £12,750 and £26,000
• Earning more than £60,000

Learn how to leverage these changes using the most tax-efficient directors salary in 2024/25.

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Dividend Tax Changes for 2024/25‍

‍Dividend Allowance‍

From 6 April 2024, the dividend allowance is set at £500. 

This, once again, halves the previous allowance of £1,000 (2023/24), which halved the prior allowance of £2,000 (2022/23).

Likely one of the most unpopular UK tax changes, this is set to raise an additional £455m in tax this year.

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Dividend Tax Rates‍

The dividend rates remain unchanged for 2024/25. When, as part of your total income, dividends fall into the:

• Basic rate (up to £50,270), the “ordinary rate” of 8.75% applies
• Higher rate (between £50,271 up to £125,150), the “upper rate” of 33.75% applies
• Additional rate (above £125,140), the “additional rate” of 39.35% applies‍

‍Learn more about dividends here.

‍Capital Gains Tax Changes for 2024/25‍

Capital Gains Allowance

Following a similar trend, the annual exempt allowance for capital gains tax (CGT) is set at £3,000 for 2024/25, this has been halved from the prior £6,000 (2023/24), which was more than halved from the prior £12,300 (2022/23).

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Capital Gains Tax Rates

For the 2024/25 tax year, CGT is charged as follows.  

CGT for basic rate taxpayers:

When your capital gains are part of your total income below £50,271, then:

• Gains on the majority of chargeable assets are subject to a rate of 10%.
• Gains on the disposal of residential property (that do not qualify for main residence relief) are subject to a rate of 18%.‍

CGT for higher rate taxpayers:

When your capital gains are part of your total income above £50,271, then:

• Gains on the majority of chargeable assets are subject to a rate of 20%.
• Gains on the disposal of residential property (that do not qualify for main residence relief) are subject to a rate of 24%. This is down from the prior 28% (2023/24).

Keep in mind that if you're usually a basic rate taxpayer but a capital gain takes you into the higher rate tax bracket, then you will pay a portion of CGT at the basic rate and the balance at the higher rate.

For example, if before any capital gain, your total income is £45,000 and you then have a taxable capital gain (e.g. from the liquidation of an investment) of £10,000, your total income becomes £55,000 and:

• The portion of the gain up to £50,271 faces a rate of 10% (basic rate) - £5,271 x 10% = £527.10
• ‍The portion of the gain above £50,271 faces a rate of 20% (higher rate) - £4,729 x 20% = £945.80

The CGT payable would be £1,472.90 (£527.10 + £945.80).

Personal Income Tax Changes for 2024/25‍

‍Income Tax Allowances

There are no personal allowance changes this year. It remains set at £12,570. 

The income limit for the personal allowance is 100,000. If you earn more than this, your personal allowance is reduced by £1 for every £2 above the limit. This means you will entirely lose the personal allowance at all if your taxable income is over £125,140.

This also means that between £100,000 - £125,140 the effective rate of tax is 60%. Why? Well, within this range you are taxed at 40% (the higher rate) but because you also lose £1 of your tax free allowance for every £2 earned, you effectively pay 40% tax on that £1 (it's no longer tax free). This means, for every £2 earned, you pay £0.40 in tax (40% on £1), which is 20% of every £2 earned (or 20% of all earnings within this range). In effect, you are therefore paying a 60% tax rate - 40% (higher rate) + 20% (lost tax-free allowance). This is known as the personal allowance tax trap and can be alleviated with private pensions contributions which we will cover in a future article.

The table below shows this year's income tax allowances:

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Income Tax Rates and Bands‍

The basic rate (20%) and higher rate (40%) tax thresholds remain frozen at £12,570 and £50,271, respectively, until 2028. 

This will push many more taxpayers into higher tax brackets. Due to inflation which is paralleled by pay increases, people will be earning more. Naturally, as everything increases, you would expect the tax thresholds to increase in tandem. By freezing the thresholds, it forces many more people into the higher brackets. This mechanism of freezing rates and letting inflation push people up through tax thresholds is referred to a 'fiscal drag.' It’s estimated that over 1 million people will pay 40% tax charges for the first time. 

Similarly, this year’s budget tax changes don’t extend to the additional rate (45%) threshold, which stays at £125,140.

This diagram shows the income tax bands and applicable tax rates with a standard personal allowance of £12,570.

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Note, the tax bands differ if you live in Scotland.‍

Corporation Tax Changes for 2024‍

Companies with profits below £50,000, will once again face the “small profits rate” of 19%.

Companies with profits between £50,000 and £250,000 will pay 19% (small profits rate) on the first portion of profits up to £50,000. The profits in excess of £50,000 but below £250,000 will face a “marginal tax rate” of 26.5%. This acts to gradually increase the average tax rate until it reaches 25%. (See the table below)

Use this page to calculate how much marginal relief your company is eligible for.

Companies with profits above £250,000 will pay the “main rate” of 25% on all profits. 

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The table below compares corporation tax between 2022/23 (the old system) and 2024/25 (the new system).

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VAT Changes for 2024/25‍

‍VAT Thresholds‍

As of April 1 2024, the UK’s VAT registration and deregistration thresholds have increased as follows: 

• You are required to register for VAT when your 12-month taxable turnover is £90,000 or more (previously set at £85,000).
• You may apply for VAT deregistration when your 12-month taxable turnover is £88,000 or less (previously set at £83,000). 

‍VAT Rates‍

The UK VAT rates remain unchanged. 

• Standard rate (20%) - Most goods and services
• Reduced rate (5%) - Some goods and services (e.g. children’s car seats)
• Zero rate (0%) - Zero-rated goods and services (e.g. most food)

You can check the VAT rates for different goods and services here.

‍Stamp Duty Changes for 2024/25‍‍

Standard Stamp Duty Land Tax (SDLT) Rates‍

For “home movers” (individuals who aren’t first-time buyers and will only own 1 home at a time), the standard SDLT rates are as follows:

• Up to £250,000: 0% (the “nil rate” band)
• £250,001 to £925,000: 5%
• £925,001 to £1.5 million: 10%
• Over £1.5 million: 12%

The SDLT rates remain structured in thresholds which means different portions of a property’s price may be taxed at different rates. For example, if you purchase a property for a price of £600,000, you would face 0% on the first £250,000 and 5% on the remaining £350,000, resulting in.a SDLT of £17,500 (£350,000 X 5%). 

SDLT First Time Buyers’ Relief‍

For first-time buyers, purchasing a property worth £625,000 or less, stamp duty is levied as follows:

• On the amount up to £425,000: 0%
• On the amount between £425,001 to £625,000: 5%

Properties above £625,000 are not eligible for these relief rates and are subject to standard SDLT rates.

SDLT for Additional Properties, Non-Natural Persons and Non-UK Residents‍

Surcharges apply to certain property purchases. These rates apply in addition to the SDLT rates above.

The following transactions would face an additional 3% surcharge:

• Purchases by individuals of additional residential properties (owning more than 1 property at a time).
• Purchases by non-natural persons (e.g. companies) of a residential property (even if they don’t own another residential property).

‍Non-UK residentspurchasing a residential property in England and Northern Ireland will face an additional 2% surcharge.

Thinking of purchasing a property, check out our comprehensive overview.

Pensions‍

‍State pension‍

‍State pension has risen to £221.20 per week from £203.85. Equating to £11,502 a year, this approaches the basic rate tax threshold of £12,570.

‍Private pensions‍

‍Annual Allowance‍

The annual allowance limits the amount you can pay into pension schemes every year before paying tax. This is set at £60,000 for the 2024/25 tax year.

‍Crystallisation Event Allowances‍

When withdrawing pensions, the new lump sum allowance is £268,275. You would begin paying tax at your income tax rates on the amount above this.

The lump sum and death benefit allowance is set at £1,073,100. This matches the overseas transfer allowance of £1,073,100.

‍Lifetime Allowance‍

The lifetime allowance sets a limit on the amount you could build up in pension schemes over your lifetime while still receiving tax relief.

As first announced in the Spring Budget 2023, the government has now abolished this lifetime allowance from 6 April 2024, as per the Finance Act 2024. Read more about the limits and taxes on private pension contributions on the Government website.

You may also want to learn about the pros and cons of funding a SIPP or company pension.

‍Inheritance Tax Changes 2024/25‍

The inheritance tax (IHT) rate remains set at 40%.

The IHT threshold, up to which IHT is not payable, remains frozen at £325,000 (until 2027/2028).

The residence nil-rate band (the 'main residence' allowance) is frozen at £175,000. When added together (£175,000 + £325,000), this allows you to pass on £500,000 with no IHT payable (or £1,000,000 per couple) when passing on your main residence to your children.

Estates with a net value of or above £2,000,000 will see the main residence allowance decrease by £1 for every £2 above £2 million that the estate is worth.

‍Learn more about inheritance tax on the government’s website.

‍National Living Wage for 2024/25‍

The National Living wage (minimum wage) from April 2024 will be:

• £11.44 per hour for adults aged 21 and above. For those above the age of 23, this has risen from £10.42 per hour. For those aged 21- 22, it is up from £10.18 per hour. 
• £8.60 per hour for those aged 18 to 20. Up from £7.49.
• £6.40 per hour for those under the age of 18 (and apprentices). Up from £5.28. 

‍Child Benefits for 2024/25‍

Outside of the tax changes for 2024, we also see adjustments to benefits. The child benefit (per week) has increased from £24 to £25.60 for the eldest child. The rate for other children has risen from £15.90 to £16.95.

This means that families with one child will now receive a maximum of £1,331 per year (up £83.20 annually), and a maximum of £881 per year per additional child (up £54.60 annually).

The high income child benefit charge (HICBC) has now increased from £50,000 to £60,000. This means you won't have to pay any of your Child Benefit back until you are earning £60,000 a year. There is a 1% charge on child benefit for every £200 of income exceeding £60,000.

The charge is tapered between £60,000 and £80,000. When earning more than £80,000, you will lose the benefit entirely as the charge will equal the amount of the child benefit payment.

‍Last Word‍

There have been a number of tax changes that came into force on 6th April 2024, sadly, not many of these are favourable to ecommerce business owners. Among the hardest hit by this year’s budget tax changes are the dividend and capital gains allowances. As a result, optimising for tax efficiency has never been more crucial. Many of our clients specifically mention this as one of our strong suits so if you’d like our help with this, get in touch with us today.