UK tax rates card – 2024-25

Are you and your spouse using your personal allowance and lower rate bands in full?

The higher rate threshold increased to £37,700 from 6 April 2021 meaning that people can earn £50,270 before paying tax at higher rates. Transfers of assets between spouses and civil partners are tax free and can help to reduce the overall tax burden by making the most of the available allowances and bands.

Consider organising your income producing assets to use the personal savings allowance which is available to basic and higher rate taxpayers but not to additional rate taxpayers. The allowance is £1,000 per year for basic rate taxpayers and £500 per year for higher rate taxpayers. Therefore, it is important to ensure that taxable income does not fall into the next tax band as the £1,000 allowance could be reduced to £500 or the £500 allowance to nil if income falls into the next tax bracket by just £1. The 0% ‘starting rate band’ remains at £5,000.

The ‘dividend allowance’ reduced from £2,000 to £1,000 from 6 April 2023 and further reduced to £500 from 6 April 2024.

Allowances that reduce taxable income

The personal allowance is reduced by £1 for each £2 of adjusted net income from £100,000 to £125,140.

We expect that the main income tax rate bands and allowances will now remain static until at least 5 April 2026.

Other allowances

Allowances that reduce tax

*Where one spouse/civil partner is born before 6 April 1935. The allowance is reduced by £1 for each £2 of adjusted net income above £37,000 until a minimum of £4,280 for 2024/25 is reached. Relief is given at 10%.

**Where both spouses/civil partners are born on or after 6 April 1935. The marriage allowance allows an individual to transfer up to this amount of their personal allowance to their spouse or civil partner. Neither the transferor nor recipient can be liable to income tax at the higher or additional rate. Relief is given at 20%.

It is extremely important to have a current, valid and up-to-date will. Marriage, divorce and material changes in assets held should all prompt a consideration of your will, to ensure it continues to meet your wishes for your family’s future. You can also make lifetime gifts to reduce your taxable estate. A gift to an individual is exempt from inheritance tax if the donor survives for seven years from the date of the gift. Therefore, consider making gifts while asset values are low, although there may be capital gains tax (CGT) implications the CGT payable on a gain now is likely to be considerably less than the IHT payable on the future value of the asset. IHT efficient investments or financial products are available which can substantially reduce your IHT exposure. Business assets qualify for 100% relief from IHT, normally after a two-year ownership period. Let agricultural land and buildings (including farmhouses and cottages) can also have favoured status for IHT.

The inheritance tax nil rate band was set at £325,000 from 6 April 2009 and is now likely to remain static until at least 5 April 2026.

A surviving spouse will receive a further nil rate band allowance based on the percentage of nil rate band not used by the predeceased spouse/civil partner. Subject to conditions, a residence nil rate band of £175,000 is available on transfers to direct descendants.

Tax rates

Main exemptions

1. Most transfers between spouses and civil partners.
2. First £3,000 of lifetime transfers in any tax year plus any unused from the previous year.
3. Gifts up to £250 p.a. to any number of persons.
4. Gifts made out of income that form part of normal expenditure and do not reduce the standard of living.
5. Gifts in consideration of marriage/civil partnership up to £5,000 by a parent, £2,500 by grandparents, or £1,000 by anyone else.
6. Gifts to charities, whether made during lifetime or on death.

Think about maximising the amounts you contribute to your pension each year. Pensions attract tax relief on contributions made and benefit from preferential tax treatment whilst invested. They are also outside of your estate and therefore exempt for inheritance tax.

For companies, a deduction from profits is usually available for pension contributions on a paid basis and not in respect of the amount recognised in the profit and loss account. It is therefore important to ensure payments are made before the end of the accounting period to accelerate relief. You might also consider whether pension contributions could be made to directors and/or shareholders instead of dividends, thus increasing the tax relief gained by the company. Care is needed as excessive contributions can result in tax charges for the individuals. Should you require further information on pensions, please speak to your usual PKF Francis Clark Financial Planning contact or your own financial adviser.

* Employer pension contributions are unlimited provided they meet the ‘wholly and exclusively’ test but do count against the annual allowance.

** The maximum tax-relievable contribution is capped by the annual allowance. For higher earners, the annual allowance is reduced by £1 for every £2 of adjusted income that exceeds £260,000, up to a maximum reduction of £50,000 with those earning £360,000+ capped at the minimum £10,000pa. Unused annual allowance from the previous three years may be used to increase the maximum tax relievable contribution, subject to specific conditions.

*** The money purchase annual allowance applies where income benefits have been taken from a defined contribution scheme, subject to specific conditions.

**** Increasing to 57 from 6 April 2028.

***** Tax free cash is normally limited to 25% of the value of the pension fund to a maximum of the lump sum allowance.

****** The lump sum allowance and lump sum & death benefit allowance replaced the previous lifetime allowance from 6 April 2024.

Will you be affected by the withdrawal of child benefit where one or more of your family’s income exceeds £60,000? The high income child benefit charge (HICBC) applies where the benefit claimant, or their partner, has annual adjusted net income of £60,000 or more. The income threshold increased from £50,000 to £60,000 on 6 April 2024. The total annual child benefit entitlement is reduced by 1% for each £200 of income in excess of £60,000 of the individual or of the partner with the highest income. If the individual or partner with the highest income has an income in excess of £80,000 the whole of the child benefit is clawed back.

In addition to income tax, most UK workers also have to pay national insurance contributions (NIC). If you are employed, these are deducted from your pay. NIC starts when you reach age 16, based on your income, and you usually stop paying when you reach state pension age. The national insurance rules if you are self-employed are more complicated, and you will usually have to pay class 2 and class 4 contributions through self-assessment, depending on the level of your profits.

Class 1

Employees above state pension age do not have to pay NIC.

*An election can be made for reduced rate of 5.85% to be apply to married women who are employees with valid certificates

An employment allowance of £5,000 per employer, per year, applies to those who paid less than £100,000 employers’ NIC in the previous tax year (2023/24).

*0% rate applies to all under 21s, apprentices under 25 years, eligible veterans for earnings up to £967 per week, and freeport and investment zone tax employees for earnings up to £481 per week.

Class 1A and 1B (employer)

Class 2

Class 3

Class 4**

*Share fishermen pay £4.10 and volunteer development workers £6.15.

**Exemption applies if the state retirement age is reached by 6 April 2024.

The ISA annual allowance increased in 2020/21, for both adults and children. It is now expected to remain static until at least 5 April 2026. Children are able to have one cash junior ISA and one stocks and shares junior ISA at any time. Anyone can invest in a junior ISA (not just parents) on behalf of a child. The help to buy ISA closed to new accounts at midnight on 30 November 2019. If you opened a help to buy ISA before 30 November 2019, you will be able to continue saving into your account until 30 November 2029, with a further 12 months to claim your bonus until 1 December 2030. The Government lifetime ISA (LISA) is also available for individuals aged between 18 and 40, who can save up to £4,000 per tax year (until they reach age 50) into a LISA and receive a 25% bonus from the Government at the end of the year.

UK corporation tax year-end planning is not what it once was. This is due mainly to the abolition of the different rates of corporation tax that previously applied to ‘large’ and ‘small’ company taxable profits. UK corporation tax has been a flat rate of 19% for most company profits since the financial year beginning 1 April 2017 and will remain at 19% for the years beginning 1 April 2021 and 2022. When approaching the financial year end though, it is important to consider the opportunities that still remain via tax reliefs to optimise working capital and business performance prior to the year end.

The main corporation tax rate increased to 25% from 1 April 2023 on profits over £250,000. The rate for diverted profits tax increased to 31% from the same date. The rate for small profits under £50,000 remains at 19%.

*When a company’s profits fall between £50,000 and £250,000, it will be able to claim an amount of marginal relief providing a gradual increase in the corporation tax rate. The lower and upper limits will be proportionately reduced for short accounting periods and where there are associated companies.

Extended loss relief will allow for a three year carry back of losses arising in 2020/21 and 2021/22. Currently losses in an ongoing business can only be carried back for twelve months. Companies that are members of a corporate group will be able to obtain relief for up to £200,000 of losses for years 2021 and 2022 without any group limitations, and for up to £2m of losses in those financial years subject to a £2m can across the group as a whole.

Have you utilised your capital gains tax annual exemption? It can’t be carried forward but planning such as spousal transfers can help ensure that annual exemptions and basic rate bands are utilised to minimise the overall CGT liability. The Government has made a number of technical changes to CGT reliefs over the last three years – please talk to your usual PKF Francis Clark adviser for more information, if you are planning a disposal.

*Separate lifetime limit on gains for external investors. Applies to newly issued shares in unlisted trading companies which have been held for three years.

You should review your proposed capital expenditure and disposals to ensure that any capital allowance claims are maximised. This is particularly important when buying or selling a commercial property as allowances may be lost if steps are not taken to identify qualifying expenditure prior to the sale / purchase. It is also important to consider the timing of capital expenditure to see if higher rates of allowances can be claimed by using first year allowances. The structures and buildings allowance introduced on 29 October 2018 provides 3% (2019/20 2%) tax relief for the cost of new or renovated commercial structures, where construction commenced on or after 29 October 2018. Relief is limited to the original cost of construction or renovation, relieved across a fixed 33 1/3 period, regardless of ownership changes.

Corporation tax allowances and reliefs

*Available from the date the site is designated until 30 September 2026.

**From 1 April 2023, companies investing in qualifying new plant and machinery assets will be able to claim a 100% first year allowance on qualifying main rate plant and machinery investment and a 50% first year allowance for qualifying special rate assets

***The Audio-Visual Expenditure Credit (AVEC) for film is 34% (39% for animated film). Independent British films with a budget of less than £15m will receive a credit of 53% on qualifying expenditure. The AVEC for high-end TV Programmes is 34% (39% for animated and children’s film).

Investing in Enterprise Investment Scheme (EIS) shares gives you income tax relief at 30% on up to £1m invested and any gain on sale of the EIS shares is exempt from CGT provided the EIS shares are held for at least three years and the qualifying conditions continue to be met. A CGT deferral is also available which can defer the gain on the disposal of any asset however, any gains deferred will usually come back into charge when the EIS shares are sold. Your investment will also be free of inheritance tax (IHT) after two years. Other tax-favoured investments are also available. Should you require further information on investments, please speak to your usual PKF Francis Clark Financial Planning contact or your own financial adviser.

*£2m if at least £1m of that is invested in ‘knowledge-intensive companies’.

Tax free mileage allowance payments are sums you pay to an employee for using their own vehicle for business journeys, or sums you receive from your employer for using your own car for business journeys. You’re allowed to pay or receive a certain ‘approved’ amount each year without having to report this to HMRC. If you are paid less than the approved amount for the use of your car, you can claim tax relief on the difference between what you were actually paid, and the approved levels.

Fuel only allowance for company cars:

These rates change on 1 March, 1 June, 1 September and 1 December each year.

*1600cc for diesel.

**1601cc for diesel.

Hybrid cars are treated as either petrol or diesel cars.

When is a car (or van) a ‘company car’? For tax purposes, when an employer makes a vehicle available to an employee or their family and household for private use, it is classed as a company car. A company car might be required as a condition of your job or offered as a benefit, and there may well be limits on your choice. Cars or vans that are provided for business use only, with private use specifically prohibited, are broadly exempt from company car tax. Although the tax charge on company cars and vans made available for private use has been increasing steadily over the last ten years, there are tax incentives in place to encourage the use of energy efficient company cars and vans, and the lowest emission cars still carry the lowest tax rates (and beneficial capital allowances treatment), so it might be time to ‘go green’. The taxable BIK is calculated as a percentage of the car’s UK list price. The percentage depends on the car’s CO2 emissions in grams per kilometre (g/km) or range in miles for electric cars.

The list price is on the day before first registration, including most accessories, and is reduced by any employee’s capital contribution (max £5,000) when the car is first made available. Where the cost of all fuel for private use is borne by the employee, the fuel benefit is nil. Otherwise, the fuel benefit is calculated by applying the car benefit percentage to £27,800 (2023/24 £27,800). Vans where private use is more than home to work travel; £3,960 (2023/24 £3,960) benefit and £757 (2023/24 £757) for private fuel.

A nil rate of tax will apply to zero-emission vans within the van benefit charge. Cars that meet the Real Driving Emissions Step 2 (RDE2) standard are exempt from the diesel supplement.

If you’re a VAT-registered business you must report the amount of VAT you’ve charged and the amount of VAT you’ve paid to HMRC. This is done through your VAT return which is usually due every three months. Making tax digital for VAT introduced digital filing and record keeping requirements for VAT and will be compulsory for all entities that are VAT registered in the UK from 1 April 2022. MTDfV will require all UK VAT registered businesses to keep ‘digital records’ and file their VAT returns via ‘functional compatible software’ – please speak to our VAT team if you need any information or help with these changes.

Taxable Turnover Limits:

*If goods cost less than 2% of turnover or £1,000p.a. you will be classified as a ‘limited cost business’ and pay a rate of 16.5% irrespective of business type.

Stamp duty is payable at a rate of 0.5% on certain transfers of shares and securities of £1,000 and over. You must pay stamp duty land tax (SDLT) if you buy a property or land over a certain price in England and Northern Ireland (in Scotland, land and buildings transaction tax apply, and in Wales land transaction tax applies – both are similar to SDLT). There are different rules if you’re buying your first home. You get a discount that means you pay less or no tax if you completed your purchase on or after 22 November 2017, the purchase price is £625,000 or less and you (and everyone else you’re buying with) are a first-time buyer. The amount charged depends on whether the property is an outright purchase or leasehold, and whether the property is residential or non-residential / mixed-use. A 2% SDLT surcharge will apply to non-UK residents purchasing residential property in England and Northern Ireland from 1 April 2021.

Qualifying purchases in freeport tax sites will be eligible for full SDLT relief.

*15% for purchases by companies on value over £500,000 subject to exemptions.

*Subject to conditions, first-time buyers pay 0% on up to £425,000 and 5% between £425,000 and £625,000. No relief available if purchase > £625,000.

*The rates are different in Wales and Scotland.

*Additional rate of 3% applies for second home and buy to let buyer, but it is excluded if purchase < £40,000.