An updated version of this article for the 2025/26 tax year has been posted here
Practical tax tips to guide you through the tax system and help you plan to minimise your liability.
Please use the guide to help you identify planning opportunities, pitfalls to avoid and areas where you may need to take action and then contact us for further advice.
The rules, rates and allowances in this guide relate to the 2024/25 tax year and these may be different for other tax years.
A Few Essentials
Introduction
Taxation in the UK is administered and regulated by HMRC. Many individuals will have little or no regular contact with HMRC. For employees, income tax is typically deducted at source from earnings before they are paid out by way of Pay as You Earn (PAYE). Often other sources of income, such as savings and dividends, are covered by allowances such that no tax needs to be paid. Without additional income tax payable to HMRC, these individuals do not need to complete income tax returns.
However, over 12 million taxpayers have something more than just a regular income taxed under PAYE or income covered by the savings and dividend allowances. They might have income from their own business or receive rent from a property. Alternatively, it may be that their savings or dividend income is significant enough to result in tax being payable. These taxpayers may be asked to complete a self assessment return each year and have direct contact with HMRC. Other taxpayers may need to complete periodic returns; for example, where they have made a disposal of an asset which is subject to Capital Gains Tax (CGT) or be responsible for collecting and paying the tax on behalf of others such as employers or businesses charging VAT.
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If you are not asked to complete a tax return, it remains your responsibility to advise HMRC by 5 October following the tax year if there is untaxed income, a capital profit that could lead to a tax liability or high levels of employment expenses or savings income. For the 2024/25 tax year, the high income child benefit charge is taxable through PAYE for employees, although the need to register for self-assessment currently remains. Please contact us for further advice if this affects you. |
The personal allowance
In principle, all individuals are entitled to a basic personal allowance before any income tax is paid. This means that many individuals do not pay income tax on the first £12,570 (for 2024/25) of income they receive, and individuals who have lower levels of income may not need to pay any income tax at all. The personal allowance is now fixed until April 2028.
Losing the personal allowance
However, the personal allowance is reduced for individuals with higher levels of income. Where an individual’s adjusted net income exceeds £100,000 the personal allowance is reduced by £1 for every £2 of income in excess of that limit. This means that an individual with an income of £125,140 or more will not be entitled to any personal allowance.
Tax rates and allowances
The income tax bands and rates for 2024/25 are determined by where you live in the UK and the type of income you have.
For most UK residents the following tax rates and bands apply:
| Taxable income | Non-savings and savings income rate | Dividend rate |
|---|---|---|
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£0 – £37,700 |
20% |
8.75% |
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£37,701 – £125,140 |
40% |
33.75% |
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Over £125,140 |
45% |
39.35% |
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Taxable income is income in excess of the personal allowance.
Non-savings income is broadly earnings, pensions, trading profits and property income.
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Savings and dividends allowances
Individuals may be entitled to the savings allowance (SA), with savings income within the SA taxed at 0%. The amount of SA depends on an individual’s marginal rate of tax (the highest rate of tax to which they are subject). An individual taxed at the basic rate of tax has an SA of £1,000, whereas a higher rate taxpayer is entitled to an SA of £500. Additional rate taxpayers receive no SA.
The dividend allowance (DA) is available to all taxpayers regardless of their marginal tax rate. The DA charges the first £500 of dividends to tax at 0%.
Savings and dividends received above these allowances are taxed at the rates shown in the table. Savings and dividends within the SA or DA still count towards an individual’s basic or higher rate band and so may affect the rate of tax payable on income in excess of the allowances.
In addition, some taxpayers may be entitled to the starting rate for savings which taxes up to £5,000 of interest income at 0%. However, this rate is not available if non-savings income exceeds £5,000.
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The DA reduced to £500 for 2024/25. It may be worth revisiting any dividend planning to ensure it is still tax-efficient in light of the reduced allowance. |
Rates and bands for Scottish and Welsh taxpayers
For 2024/25 the tax rates and bands applicable to Scottish taxpayers on non-savings and non-dividend income are as follows:
| Taxable income | Band name | Rate |
|---|---|---|
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£0 – £2,306 |
Starter |
19% |
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£2,307 – £13,991 |
Basic |
20% |
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£13,992 – £31,092 |
Intermediate |
21% |
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£31,093 – £62,430 |
Higher |
42% |
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£62,431 – £125,140 |
Advanced |
45% |
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Over £125,140 |
Top |
48% |
As above, taxable income is income in excess of the personal allowance.
For 2024/25 the Welsh rate of income tax on non-savings income is set at 10% and this is added to the UK rates, which are each reduced by 10%. For 2024/25, the overall tax payable by Welsh taxpayers continues to be the same as English and Northern Irish taxpayers.
Scottish and Welsh taxpayers continue to pay tax on their savings and dividend income using the UK rates and bands and the personal allowance is set for the UK as a whole.
Income tax reliefs
In order to encourage charitable giving and saving for the future, income tax relief is available for donations made to charity under gift aid and pension contributions to personal pension schemes.
Basic rate relief is deemed to be given at source. Effectively what this means is that basic rate tax is reclaimed by the charity or pension fund, so you only need to pay £100 for the charity/fund to receive £125.
Relief for higher and additional rate taxpayers is given by extending the bands set out above by the gross amount of the donation (the total receipt by the charity/fund). For example, a higher rate taxpayer making a donation of £100 would pay tax at 20% on the first £37,825 of taxable income rather than £37,700.
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Gift aid donations and personal pension contributions are also deducted from your income to arrive at adjusted net income for the purposes of calculating any reduction in your personal allowance.
If your adjusted net income is between £100,000 and £125,140, you may want to consider making or increasing charitable donations or pension contributions in order to minimise the reduction in the personal allowance.
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There are specific rules which determine how much tax relief can be obtained for pension contributions which we will discuss further in another article ‘Tax and Your Investments’, which also contains details of relief for contributions to occupational pension schemes.
Other taxes
Individuals are not only taxable on the income they receive. You may own assets such as a precious antique, a second home or shares. If such an asset is sold at a profit this may give rise to a liability to CGT. Details of any capital gains may have to be included on the self assessment return if you receive one; alternatively you can complete a ‘real time’ return.
Inheritance Tax (IHT) may be payable on the assets that you give to others in your lifetime or leave behind when you die. With rising house prices, this has become a concern for many more individuals.
Many of those in business have to understand the principles of VAT because they will have to act as a collector of this tax. In addition, those who run their business through a limited company need to know about corporation tax which taxes a company’s profits. Employing others in your business brings further obligations with Real Time Information reporting for PAYE and auto enrolment pension contributions responsibilities. We consider these issues later in this guide.
Self assessment (SA) timetable
Income tax and CGT are both assessed for a tax year which runs from 6 April to the following 5 April. The tax year 2024/25 runs from 6 April 2024 to 5 April 2025.
Shortly after 5 April a notice to complete a return is usually issued by HMRC. Typically the return then needs to be submitted by:
- 31 October following – non-electronic returns (where you have requested a paper return from HMRC or downloaded a blank return).
- 31 January following – returns filed online.
These deadlines may be extended in certain circumstances where the notice to submit a return is issued later than expected.
There is an automatic penalty of £100 for late filing of the return. Further penalties may be due if the filing of the return is significantly delayed. These may run into hundreds of pounds.
HMRC is increasingly emphasising the importance of good records. Failure to maintain adequate records may lead to inaccurate tax returns, which could result in penalties.
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Remember to keep all tax related documents such as interest statements, dividend vouchers, form P60 etc. Place everything in a folder through the year as it is received. Then you can simply hand this to us when we need to prepare your self assessment return. |
For information of users: This material is published for the information of clients. It provides only an overview of the regulations in force at the date of publication, and no action should be taken without consulting the detailed legislation or seeking professional advice. Therefore no responsibility for loss occasioned by any person acting or refraining from action as a result of the material can be accepted by the authors or the firm.