Navigating the New Tax Year: What You Need To Know for 2024/25

The 2024/25 tax year came into effect on Saturday 6th April, and with it comes a number of important changes you need to be aware of.

From income tax and National Insurance, to savings accounts and pensions, we’ve got you covered…

Tax changes coming into effect in April 2024

Every year, tax thresholds and allowances change, with those adjustments taking effect in April. So, what can you and your family expect to gain (or lose) in the 2024/25 tax year? 

Income tax

There are no changes to income tax bands or thresholds (the point at which income tax is paid) for the 2024/25 tax year, with the personal allowance being frozen at £12,570. The higher rate (40%) remains payable at all income earned between £50,271 and £125,140, while the additional rate (45%) is also remaining for all income over £125,140.

National Insurance

Like with income tax, the National Insurance threshold is remaining frozen at £12,570. However, from 6th April 2024, the main rate of NICs (Class 1) is being cut by 2p (from 10% to 8%). This is a further cut following the 2% reduction announced in the Autumn Statement that was made effective from 6th January 2024.

The main rate of self-employed NICs (Class 4) is also being cut by 2p, while Class 2 NICs are being abolished entirely for self-employed workers.

Inheritance tax

For the 2024/25 tax year, inheritance tax due on estates valued at more than £325,000 remains at 40%, while estates worth £325,000 or less can be inherited tax-free. This is unchanged, and is frozen until 2026.

Capital Gains tax

Although Capital Gains Tax rates have not changed for the new tax year, the tax-free allowance has been halved, from £6,000 in 2023/24 to £3,000 in 2024/25.

Note that the rates are different depending on whether the gains are from residential property or other chargeable assets. The former is charged at 18% (Basic Rate) and 24% (Higher and Additional rates), while the latter is charged at 10% and 20% respectively.

Dividends tax rate

If you earn dividends from any personal investments, these rates have also not changed for the 2024/25 tax year. These are set at:

• 0% for up to £12,570
• 8.75% on dividends between £12,571 and £37,700 (Basic Rate)
• 33.75% on dividends between £37,701 and £125,140 (Higher Rate)
• 39.35% on dividends over £125,140 (Additional rate)

Pension changes

What changes can you expect to pensions for the 2024/25 tax year?

Workplace pensions

There are no changes to the Workplace Pension scheme for the 2024/25 tax year, with the minimum employee contribution remaining at 8% of qualifying earnings, and the minimum employer contribution remaining at 3%.

State pensions 

The State Pension is increasing by 8.5% in April 2024, meaning someone receiving the full, flat-rate state pension (available to those reaching state pension age after April 2016) will get £221,20 per week (£11,500 per year), up from £203.85 last year.

For those who reached state pension age before April 2016, their weekly income is rising from £156.20 per week to £169.50 per week (£8,814 per year).

Personal pensions

The annual allowance on personal pensions—the amount you can pay into a personal pension tax-free—is remaining at £60,000 for the 2024/25 tax year.

Personal savings changes

There are no changes to the amount of tax-free interest you can earn on personal savings per year. This is £1,000 for Basic Rate taxpayers, £500 for Higher Rate taxpayers and £0 for Additional Rate taxpayers/

The amount you can put into an ISA each year also remains unchanged at £20,000, but from April 2024 you will be able to have multiple ISA subscriptions and facilitate partial transfers of savings between providers. There are four types of ISA—cash ISAs, stocks and shares ISAs, innovative finance ISAs and Lifetime ISAs—and you’ll be able to put money into one of each type each tax year, although the total must not exceed £20,000.

National Living Wage and National Minimum Wage changes for 2024/25

There are several changes affecting the National Living Wage and National Minimum Wage, both in terms of the minimum hourly rate and who is eligible.

From 1st April 2024, the National Living Wage (the highest rate of minimum wage) is increasing from £10.42 to £11.44 for those aged 23 and over. However, people aged 21 and 22-years old will also be eligible for the highest rate of National Living Wage for the first time. This represents an increase of £1.26 per hour (£10.18 to £11.44).

Hourly rates for under-21s, including apprentices, is also increasing as follows:

• 18-20-year olds—£7.49 to £8.60
• Under 18—£5.28 to £6.40
• Apprentices*—£5.28 to £6.40

*Note that the Apprentice rate is applicable to under-19-year olds, as well as anyone aged over 19 in the first year of their apprenticeship. Apprentices aged over 19 who have completed their first full year are entitled to the minimum wage for their age group.

Student loan changes for 2024/25

There are three types of student loan that may be applicable to you: Plan 1 (loans taken out before 2012), Plan 2 (loans taken out after 2012) and postgraduate loans.

Although there have been no rate increases, some of the repayment thresholds have changed:

• The repayment threshold for Plan 1 has increased from £22,015 to £24,990.
• The repayment threshold for Plan 2 remains at £27,295.
• The repayment threshold for postgraduate loans is £21,000, but could still change.

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Are you looking for advice and support on managing your finances for the 2024/25 tax year? Why not reach out to the team here at Warr & Co? We’ve been helping individuals and families just like yours to make the most of their money for years, so you can rest assured we’re best placed to help you plan your savings, investments, retirement and much more.