Personal tax allowance
UK taxpayers can earn £12,570 before paying income tax in tax year 2024/25.
The rates for UK taxpayers (excluding Scotland) after taking account of the personal allowance are:
- 20% basic rate on taxable income up to £37,700
- 40% higher rate on taxable income between £37,701 – £125,140
- 45% additional rate on taxable income over £125,140
The rates for Scottish taxpayers after taking account of the personal allowance are:
- 19% starter rate on taxable income up to £2,306
- 20% basic rate on taxable income over £2,306
- 21% intermediate rate on taxable income over £13,991
- 42% higher rate on taxable income over £31,092
- 45% advanced rate on taxable income over £62,430
- 47% top rate on taxable income over £125,140
For both, for every £2 that you earn above £100,000, the Personal Allowance reduces by £1. This means if you earn £125,140 or more, your personal tax allowance is zero.
These income tax thresholds will be frozen until tax year 2027/2028, pulling more tax payers into higher and additional rates than if thresholds had continued to rise with CPI inflation.
Dividend allowance
If income that you receive from dividends (from share ownership for example) falls within your personal allowance, you do not need to pay tax on it. You also get a dividend allowance each year – for 2024/25 it’s £500. How much tax you pay on dividend income over the allowance depends on which income tax band you’re in.
Rates are as follows:
| Basic rate | 8.75% tax rate on dividends over the allowance |
| Higher rate | 33.75% tax rate on dividends over the allowance |
| Additional rate | 39.35% tax rate on dividends over the allowance |
To work out your tax band, add your total dividend income to your other income.
Capital gains exemption
You pay capital gains tax when you sell various assets, such as personal possessions (apart from your car), cryptoassets or a property that’s not your main home. The capital gains tax-free exemption is £3,000, and up to £1,500 for trusts.
Where the gain exceeds the annual exemption, for gains arising after 30 October 2024, basic rate tax payers pay 18% tax on any gain with higher and additional rate taxpayers, personal representatives and trusts paying 24% . Prior to 30 October 2024 the rates were 10% for basic rate tax payers with an 8% surcharge in respect of gains in relation to residential properties and 20% for other tax payers with a 4% surcharge for residential property gains.
Various reliefs are available including Business Asset Disposal Relief – speak with your financial adviser for more information.
Inheritance Tax threshold
Everyone is entitled to a threshold, known as the nil rate band which currently stands at £325,000. If you leave assets worth £325,000 or less, there is no Inheritance Tax (IHT) to pay. Further, there is a special threshold, known as the residence nil rate band which applies in respect of residential property passing to direct descendants.
This threshold is currently £175,000. If you leave wealth above these amounts the value will generally be liable to IHT at 40% in tax year 2024/25. If you are leaving assets/property that will tip your estate over these thresholds – frozen until 2028 – careful planning will minimise the impact on your family, who may not be prepared for a large tax bill.
Gifts made less than seven years before your death will be added to the value of your estate and use your £325,000 allowance, although if gifts are more than this the resulting death tax charge does taper according to how recently the gifts were made.
Personal savings allowance
The personal savings allowance is £1,000 for basic rate taxpayers and £500 for higher rate taxpayers. It can be used against interest income, including bond chargeable event gains.
Marriage/civil partnership allowances
The marriage allowance for married couples and civil partners is also known as the transferable tax allowance. You’re allowed to transfer £1,260 of your personal allowance to your spouse or civil partner to give them a tax credit. You can do this if neither of you is liable to income tax at a higher rate than the basic rate (or the 21% intermediate rate if in Scotland).
Dividend income is a consideration when calculating the highest rate at which either of you are taxed.
If one of you was born before 6 April 1935, you can claim the married couple’s allowance (MCA), which is usually more beneficial. It works by deducting 10% of the allowance from the tax due on your taxable income. The full allowance is £11,080 for 2024/25, so you can deduct a maximum of £1,108 from your income tax bill. The MCA is reduced when one of you earns more than the set limit for the year. The income limit is £37,000 for 2024/25. But which spouse or partner’s income cannot go over the threshold depends on whether you were married before or after 5 December 2005, so it’s worth taking financial advice.
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