Happy New Tax Year: Tax Card 2024/2025
Tax rates and allowances are fundamental to our business and personal lives. Here are the updates for the new tax year!
As we step into the fiscal year 2024/25, it's essential to have a clear understanding of the various tax allowances, rates, and benefits that could impact your finances. From income tax to capital gains tax, and from vehicle benefits to VAT, this guide will navigate you through the intricate landscape of taxation in the United Kingdom.
Income Tax Allowances
Let's start with income tax allowances for the year 2024/25. The personal allowance remains steady at £12,570, ensuring a tax-free threshold for individuals. However, it's crucial to note that this allowance is reduced for those earning between £100,000 and £125,140.
For savers, there are allowances based on your tax bracket, with basic-rate taxpayers eligible for £1,000, higher-rate taxpayers for £500, and additional-rate taxpayers for £0. The dividend allowance at 0% stands at £500, and there's also a marriage/civil partner transferable allowance of £1,260.
Income Tax Bands and Rates
The income tax bands and rates also see some adjustments. The basic-rate band spans from £12,571 to £50,270, with a tax rate of 20%. Higher-rate taxpayers fall into the band of £50,271 to £125,140, taxed at 40%, while additional-rate taxpayers face a rate of 45% on earnings above £125,140.
For those in Scotland, income tax rates differ slightly, with bands ranging from starter to top, each with its respective rates based on taxable income.
Vehicle and Fuel Benefits-in-Kind
If you're a company car owner or receive fuel benefits, understanding the taxable value of your benefits-in-kind is crucial. The calculation depends on the car's CO2 emissions and the fuel benefit multiplier. Diesel vehicles not meeting the RDE2 standard may incur a 4% surcharge.
The company-car fuel benefit multiplier remains the same at £27,800.
Tax-Free Mileage Allowances
For business-related journeys, tax-free mileage allowances provide relief. Whether you're using a car, van, motorcycle, or even a bicycle, there are specific rates per mile that can be claimed for qualifying business travel.
Capital Gains Tax
In the realm of capital gains tax (CGT), understanding the rates and exemptions is vital for anyone engaging in asset sales or transfers. For the fiscal year 2024/25, the main rates stand firm at 10% for individuals in the basic-rate band and 20% for individuals above the basic-rate band, as well as for trusts and estates.
Individuals and trustees benefit from an annual exemption, allowing gains up to £3,000 for individuals and £1,500 for trusts without incurring CGT. Additionally, specific reliefs such as business asset disposal relief and investors' relief offer reduced rates of 10% on eligible gains, with respective lifetime limits of £1 million and £10 million.
Inheritance Tax
Inheritance tax (IHT) remains a significant consideration for estate planning and wealth transfer. For the 2024/25 fiscal year, the nil-rate band limit stands at £325,000 per individual, providing an exemption threshold for estates below this value. Additionally, the main residence nil-rate band (RNRB) offers an additional relief of £175,000 for individuals passing on their main residence to direct descendants.
One notable feature of the RNRB is its tapering withdrawal for estates exceeding £2 million. For every £2 of estate value above this threshold, the RNRB reduces by £1. However, this tapering mechanism aims to balance relief availability with estate size, ensuring that larger estates still benefit from the allowance, albeit at a reduced rate.
Furthermore, married couples and civil partners enjoy combined threshold limits, including the main residence nil-rate band, effectively doubling their exemption potential to £1 million.
Business property relief (BPR) and agricultural property relief (APR) continue to offer valuable exemptions for qualifying assets. BPR provides relief at 50% or 100% for business assets, while APR offers similar relief for agricultural property. These reliefs play a crucial role in safeguarding family-owned businesses and agricultural estates from excessive tax liabilities, ensuring smoother intergenerational transfers.
Company Taxation
For businesses operating in the United Kingdom, understanding the intricacies of company taxation is paramount to financial planning and compliance. Here's a breakdown of the key aspects for the 2024/25 fiscal year:
Corporation Tax Main Rate: The main rate of corporation tax remains at 25% for the 2024/25 financial year. This rate applies to companies with profits above the small profits rate threshold.
Loans to Participators: Companies extending loans to participators are subject to a tax charge at a rate of 33.75%. It's crucial for businesses to comply with regulations regarding loans to shareholders or directors to avoid unexpected tax liabilities.
Diverted Profits Tax: The diverted profits tax (DPT) rate remains at 31% for the 2024/25 fiscal year. DPT is designed to counteract tax avoidance by multinational companies through the diversion of profits away from the UK.
Small Profits Rate: The small profits rate, applicable to companies with profits falling within a certain threshold, remains at 19% for the 2024/25 financial year. This lower rate provides relief for small and medium-sized enterprises (SMEs), encouraging growth and investment.
Lower and Upper Thresholds: The lower and upper thresholds determine the range of profits eligible for the small profits rate. For the 2024/25 fiscal year, profits falling between £50,000 and £250,000 are subject to a tapered rate.
VAT
Value Added Tax (VAT) is a significant component of the UK's taxation system, affecting businesses and consumers alike. Here's what you need to know for the 2024/25 fiscal year:
Standard Rate: The standard VAT rate remains unchanged at 20% for most goods and services.
Reduced Rate: Certain goods and services qualify for a reduced VAT rate of 5%. This includes items such as domestic fuel and power, children's car seats, and energy-saving materials.
Taxable Turnover Limits: VAT registration and deregistration thresholds have been adjusted for the 2024/25 fiscal year. Businesses with taxable turnover exceeding £90,000 within a 12-month period are required to register for VAT. Conversely, businesses with taxable turnover falling below £88,000 within the same timeframe may deregister for VAT.
Annual and Cash Accounting Schemes: For eligible businesses, the annual accounting scheme allows for simplified VAT reporting on an annual basis, easing administrative burdens. Similarly, the cash accounting scheme enables businesses to account for VAT on the basis of cash received and paid, rather than on invoice dates.
Flat-Rate Scheme: The flat-rate scheme offers simplified VAT accounting for small businesses, allowing them to apply a fixed flat rate percentage to their VAT-inclusive turnover.
Research and Development (R&D)
Research and Development (R&D) tax relief is a valuable incentive provided by the government to encourage innovation and investment in research and development activities. Here's what you need to know for the 2024/25 fiscal year:
Revenue Expenditure for SMEs: Small and medium-sized enterprises (SMEs) can benefit from an enhanced R&D tax relief of up to 86% on qualifying revenue expenditure. This means that for every £1 spent on eligible R&D activities, SMEs can potentially claim back up to 86p as tax relief.
Capital Expenditure for All Companies: Larger companies and SMEs alike can claim R&D tax relief on qualifying capital expenditure at a rate of 100%. This provides a significant incentive for businesses of all sizes to invest in innovative projects and technologies.
SME Company R&D Payable Credit: SMEs that are in a tax loss position can benefit from a payable tax credit of 10% on qualifying R&D expenditure. This means that even if a company is not making a profit, it can still receive a cash payment from the government based on its R&D investment.
R&D Expenditure Credit (RDEC): Larger companies that do not qualify for SME R&D relief can benefit from the R&D expenditure credit (RDEC) at a rate of 20%. This allows them to claim back a proportion of their R&D expenditure as a tax credit, further incentivizing investment in innovation
Tax-Efficient Investments
Tax-efficient investments play a crucial role in wealth management and financial planning, offering individuals and businesses opportunities to minimize tax liabilities while maximizing returns. Here's a summary of key tax-efficient investment options for the 2024/25 fiscal year:
Individual Savings Accounts (ISAs): ISAs provide a tax-efficient way to save and invest money. For the 2024/25 tax year, the annual investment limit for ISAs remains at £20,000 per individual. ISAs offer a range of options including cash, stocks and shares, and innovative finance ISAs, allowing individuals to shelter their savings and investment returns from income tax and capital gains tax.
Lifetime ISA: The Lifetime ISA (LISA) is specifically designed to help individuals save for their first home or retirement. Eligible individuals can contribute up to £4,000 per year into a LISA, and the government provides a 25% bonus on contributions, up to a maximum of £1,000 per year. Withdrawals from a LISA for a first home purchase or retirement are tax-free.
Help-to-Buy ISA: While no longer available to new savers, existing Help-to-Buy ISA holders can continue to benefit from government contributions of up to £200 per month towards their first home purchase. Contributions to a Help-to-Buy ISA are not subject to tax, and eligible withdrawals for a first home purchase are tax-free.
Junior ISA and Child Trust Fund: Junior ISAs and Child Trust Funds offer tax-efficient savings and investment options for children. For the 2024/25 tax year, the annual contribution limit for Junior ISAs and Child Trust Funds is £9,000 per child. Any returns generated within these accounts are tax-free.
Venture Capital Trusts (VCTs) and Enterprise Investment Scheme (EIS): VCTs and EIS offer tax incentives for investing in small, high-risk companies. Investors can benefit from income tax relief of up to 30% on investments in VCTs and EIS, as well as potential capital gains tax exemptions and inheritance tax relief.
Seed Enterprise Investment Scheme (SEIS): SEIS provides tax relief for individuals investing in early-stage, high-risk companies. Investors can benefit from income tax relief of up to 50% on investments in SEIS-eligible companies, as well as potential capital gains tax exemptions and inheritance tax relief.
Registered Pensions
Registered pensions play a crucial role in retirement planning, offering individuals tax-efficient ways to save for their later years. Here's an overview of key aspects of registered pensions for the 2024/25 fiscal year:
Lifetime Allowance Limit: The lifetime allowance for pensions determines the maximum amount of pension savings an individual can accrue without incurring additional tax charges. For the 2024/25 tax year, there is no fixed lifetime allowance limit. Instead, the government has introduced new allowances, including the lump sum allowance (LSA) and the lump sum and death benefit allowance (LSDBA).
- Lump Sum Allowance (LSA): For most individuals, the LSA limits the tax-free cash that can be taken from a pension to £268,275.
- Lump Sum and Death Benefit Allowance (LSDBA): The LSDBA limits the total amount of tax-free cash that can be received from a pension in a lifetime and upon death to £1,073,100, in most cases.
- Overseas Transfer Allowance (OTA): An OTA applies if a pension is transferred abroad. This allowance allows individuals to transfer their pension savings overseas without incurring additional tax charges.
Money Purchase Annual Allowance: The money purchase annual allowance (MPAA) determines the maximum amount individuals can contribute to a money purchase pension scheme once they have accessed their pension flexibly. For the 2024/25 tax year, the MPAA is set at £10,000.
Annual Allowance Limit: The annual allowance sets the maximum amount of pension savings that can benefit from tax relief each year. For the 2024/25 tax year, the annual allowance limit is £60,000.
- Tapered Annual Allowance: The tapered annual allowance may apply to individuals with high incomes. If an individual's threshold income exceeds £200,000 and their adjusted income exceeds £260,000, the annual allowance may be tapered down to a minimum of £4,000.
Minimum Age for Accessing Benefits: Individuals can typically access their pension benefits from the age of 55 onwards.
Maximum Tax-Free Pension Lump Sum: Individuals can usually take up to 25% of their pension fund as a tax-free lump sum upon retirement.
National Insurance
National Insurance (NI) is a fundamental component of the UK's social security system, contributing to various benefits and state pensions. Here's an overview of NI rates and thresholds for the 2024/25 fiscal year:
Class 1 NI Contributions:
- Employee Rate: Employees contribute NI based on their earnings. For the 2024/25 tax year:
- Earnings up to £242 per week: No NI contributions.
- Earnings between £242 and £967 per week: 8% NI contributions.
- Earnings above £967 per week: 2% NI contributions.
- Employer Rate: Employers also contribute NI on behalf of their employees. For the 2024/25 tax year:
- Earnings up to £175 per week: No employer NI contributions.
- Earnings between £175 and £967 per week: 13.8% employer NI contributions.
- Earnings above £967 per week: 13.8% employer NI contributions.
- State Pension Age Exemption: Individuals above the state pension age are exempt from paying NI contributions on their earnings.
- Special Rates: Lower NI rates apply for certain categories, such as staff under 21 and apprentices under 25, as well as new employees in freeport tax sites.
Class 1A NI Contributions:
- Class 1A NI contributions are payable by employers on relevant benefits provided to employees, such as company cars and fuel benefits, at a rate of 13.8%.
Class 2 NI Contributions:
- Self-Employed: Class 2 NI contributions are payable by self-employed individuals above the lower profits limit. For the 2024/25 tax year, the contribution rate is £0 for those with profits below the lower profits limit.
Class 3 NI Contributions:
- Class 3 NI contributions are voluntary contributions individuals can make to qualify for certain state benefits. For the 2024/25 tax year, the rate is £17.45 per week.
Class 4 NI Contributions:
- Self-Employed: Class 4 NI contributions are payable by self-employed individuals on profits between £12,570 and £50,270 at a rate of 6%. On profits above £50,270, the rate is 2%.
Employment Allowance:
- Employers may be eligible for the employment allowance, which reduces their employer NI contributions. For the 2024/25 tax year, the allowance is £5,000 per employer per year, subject to certain conditions.
Stamp Duty and Property Taxes
Consideration on shares over £1,000 incurs a stamp duty of 0.5%. Incremental rates of tax are payable on the part of the property price within each band. An extra 3% rate (6% in Scotland) applies to purchases of additional residential property above £40,000 and all corporate residential properties.
England & Northern Ireland: Stamp duty land tax ranges from 0% to 12%, depending on the property price. Scotland: Land and buildings transaction tax rates range from 0% to 12%, and Wales: Land transaction tax rates range from 0% to 12%.
Important Notice
These rates and allowances are based on fiscal Statement and Budget announcements made by the UK and Northern Ireland, Scottish and Welsh Governments and are for information only. All information is subject to change before 6 April 2024 and confirmation by the respective governments. The above must not be considered advice and no warranty is given for the accuracy or completeness of the details. Professional advice should be sought before making any decisions. Rates apply to the UK and Northern Ireland unless stated otherwise.
In conclusion, staying informed about taxation and financial allowances is key to managing your finances effectively in the upcoming fiscal year. By understanding the various allowances, rates, and benefits, you can make informed decisions to optimise your financial situation.
Talk to an Expert
By leveraging the expertise of an accountant like us, you can navigate the complex tax landscape with greater ease and confidence, ensuring that your financial planning is both compliant and optimised for your specific situation.
Need assistance? Get in touch for advice on your personal tax planning.
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