New tax year, new rates: your guide to household finances for the 2024/25 financial year

A guide to key rates, thresholds and allowances for the 2024/25 tax year:

• Section 1: Pay & income
• Section 2: Childcare & child benefit
• Section 3: Assets & investments
• Section 4: Pensions
• Section 5: Business taxation

As the new tax year begins, households face a range of tax changes that will impact their finances.

For employees and the self-employed, April's payslips will be boosted by cuts to National Insurance, although the ongoing freeze on income tax thresholds eradicates the saving for many.

Parents can look forward to some additional support with the cost of childcare, with the expansion of the 'free hours' scheme. Similarly, those parents with earnings between £60,000-£80,000 stand to gain under reforms to the Child Benefit high income tax charge.

Investors will see their CGT and dividend tax allowances cut once again, with millions set to be caught. Similarly, many savers will find themselves with a tax code adjustment to account for tax owed on savings, with the personal savings allowance remaining frozen.

Section 1: Pay & income

Income Tax

The personal allowance, basic rate, higher and additional rate tax thresholds are frozen for 2024/25.

Income tax thresholds have been frozen since April 2021, when they were last uprated with inflation for the 2021/22 tax year. The policy is currently expected to remain in place until April 2028. The additional rate threshold has been cut since the freeze began, falling from £150,000 to £125,140 in April 2023.

*The personal allowance is completely extinguished once earnings reach £125,140, with £1 of the personal allowance lost for every £2 of 'adjusted net income' above £100,000. This means there is a higher effective tax rate of 60% on earnings of £100,000-£125,140.

National Insurance (NI)

From 6 April 2024, the main rate of NI was cut by 2 percentage points from 10% to 8%. This followed a 2 percentage point cut in January 2024, meaning the main rate has reduced from 12% in April 2023 to 8% in 2024/25.

NI contribution thresholds are also frozen for the 2023/24 tax year.

The cuts to NI follow several changes implemented in recent years. The NI primary threshold was increased during the 2022/23 tax year, increasing from £9,880 to £12,570 from 6 July 2022 onward.

Employee NI was also subject to an additional 1.25% (taking rates to 13.25% and 3.25%) during the 2022/23 tax year, up until 6 November 2022.

National Insurance rate cuts were first announced at the Autumn Statement in 2023, with a planned 2% cut for employees in January 2024. This was implemented, and then followed by a further 2% cut, taking the main rate to 8%, for the start of the 2024/25 tax year.

Cuts to self-employed NI have also been implemented. At the 2023 Autumn Statement a 1% cut was announced, taking the main Class 4 self-employed NICs rate from 9% to 8%, although this was not due to apply until April 2024. It was subsequently superseded by a further 2% cut at the 2024 Spring Budget, taking the rate down to 6%. In addition, Class 2 NI has been abolished, having previously been set at a weekly rate of £3.45 for anyone with self-employed profits over £12,570.

*Those earning above the lower earnings limit but below the primary threshold will not pay NI, but are effectively treated as though they have. This means they obtain a qualifying year of NI contributions against their state pension eligibility record, for example.

Minimum wage

New rates took effect from 1 April 2024,with hourly pay increasing by more than £1 across the National Living Wage and Minimum Wage.

The most significant increase comes for those aged 21-23. The previous age 21-23 band has been removed, with everyone age 21 and older now eligible for the full National Living Wage.

The increase amounts to a 9.8% increase in the National Living Wage, with those age 21-23 getting a 12% increase.

Section 2: Childcare and child benefit

Child benefit

Payable to households with children aged under 16, or under 20 if they remain in education, child benefit is increased for 2024/25. Parents registered for child benefit can receive National Insurance credits, meaning they obtain qualifying years for the state pension.

Child benefit high income tax charge

The high income child benefit charge is applied where child benefit is claimed and one or both parents have an income over £60,000. This is a significant change, with the tax charge previously applying on earnings over £50,000.

Child benefit is now withdrawn at a rate of 1% for each £200 of earnings over £60,000, meaning eligibility for child benefit is lost entirely where one partner earns £80,000 or more. Previously child benefit was eroded at a rate of 1% per £100 of earnings from £50,000 to £60,000.

'Free' hours

Working parents of children aged three to four are currently eligible for 30 hours free childcare during term time. Minimum earnings requirements apply, while families are only entitled to 15 free hours a week if one or both partners have earnings over £100,000.

The scheme is now being extended gradually, starting from April 2024. Going forward parents of two years olds will be able to access 15 hours of free hours per week during term time. From September the 15 free hours entitlement will be extended to working parents of children from 9 months (3 and 4 year olds still get the full 30 hours). For these new hours parents lose the whole entitlement once either of them earns over £100,000.

Free hours apply in the term following the child's birthday. For example, parents of a child turning 2 in June this year are eligible for 15 free hours from September.

Not until September 2025 will the full entitlement to 30 free hours be extended to parents of children from 9 months old.

Tax-free childcare

Using a Tax-Free Childcare account, parents can obtain a £2 government top-up for every £8 paid in. The government payment is equivalent to basic rate tax relief and capped at a maximum £2,000 per year per child, or £4,000 for disabled children.

The scheme remains unchanged for 2024/25.

Section 3: Assets and investments

ISAs

All ISA annual subscription limits remain frozen at the current level and the Lifetime ISA bonus remains at 25%.

Minor reforms to ISAs mean it is now possible to subscribe to more than one of the same type of ISA in single tax year. For example, an individual can pay into two stocks and shares ISAs in 2024/25 if they choose.

The age at which a cash ISA can be held is increasing from 16 to 18, except in relation to individuals who are 16 or 17 years old on 5 April 2024 (and who have not subsequently reached the age of 18) who can continue to have, apply for or transfer a single cash ISA account. Those that fall into these transitional arrangements will be able to subscribe up to £20,000 in their adult cash ISA as well as up to £9,000 into a junior ISA.

The government is also consulting on introducing a new £5,000 UK ISA allowance. The consultation closes in June 2024. You can read more about AJ Bell's view on the UK ISA through the media centre.

*LISAs can only be opened by those aged 18-39 and subscriptions can be made up until age 50. The maximum payment of £4,000 normally counts as part of the overall adult ISA subscription limit of £20,000.

Dividends

The dividend allowance is halved again this year, from £1,000 to £500, costing investors up to £197 in additional tax compared to last year. In total, the two successive cuts to the dividend allowance could cost up to £590 a year for additional rate taxpayers, £506 for a higher rate taxpayer and £131 for a basic rate taxpayer.

An FOI request submitted by AJ Bell indicates an additional 1.8 million people will pay tax on dividends because of the changes (Source: AJ Bell FOI).

On 6 April 2022 rates were increased by 1.25% to 8.75%, 33.75% and 39.35% respectively for basic, higher, and additional rate taxpayers and remain at that level for 2024/25.

Capital Gains Tax

The Capital Gains Tax (CGT) allowance has been halved again this year from £6,000 to £3,000.

CGT rates largely remain the same as last year, except for the top rate of CGT applied on gains made from the sale of property which will be reduced from 28% to 24%. For 2024/25, CGT is charged at the following rates:

• Basic rate taxpayers: 10% or 18% for property (excluding main residence) - the same as in 2023/24
• Higher & additional rate taxpayers: 20% or 24% for property (excluding main residence)

Stamp Duty (property)

Rates and thresholds remain at the same level set at the mini-Budget in September 2022. Jeremy Hunt subsequently made the changes temporary, with the threshold due to revert to £125,000 from April 2025. A further 3% on top applies to those buying an additional property.

First time buyers are eligible for first time buyer's relief, with no stamp duty charged on the first £425,000, provided the property costs less than £625,000. It is charged at the standard rate of 5% on the value of the purchase from £425,001 to £625,000.

Personal Savings Allowance

The amount of savings interest that can be earned tax free remains frozen.

Rising interest rates on cash mean many more households are paying tax on savings interest. An FOI request from AJ Bell revealed that in the tax year just ended HMRC estimates more than 2.7 million people will owe tax on savings interest, up by around 1 million on the year before. In total, the tax is expected to generate £6.6 billion (Source: AJ Bell FOI).

In many cases, people will not realise they owe the tax until they're notified of an adjustment to their tax code.

*Individuals with income below £17,570 can receive up to £5,000 of interest tax free under the starting rate for savings. Every £1 of income above the £12,570 personal allowance reduces the starting rate for savings by £1.

Inheritance Tax

IHT: The tax-free threshold remains frozen for 2024/25 at £325,000.

Levied on estates on death Inheritance Tax (IHT) is charged at 40% of the value of the individual's estate over the £325,000 nil rate band. The nil rate band is transferable between spouses, giving married couples a combined £650,000 free of IHT.

Residence nil rate band (RNRB): An additional £175,000 tax-free exemption enables married homeowners to benefit from a total £1 million IHT exemption. The RNRB also remains frozen for 2024/25.

Section 4: Pensions

State pension

The state pension is increased by 8.5% in line with wage growth figures in the three months to July 2023, taking the full flat-rate state pension to more than £11,500 per year. A manifesto commitment at the last general election, both Labour and Conservative politicians have indicated the triple lock will feature in their upcoming election manifestos.

Pension credit

The minimum guaranteed income paid to low-income pensioners is also increased:

Annual Allowance

The annual allowance will stay the same at £60,000. It was increased from £40,000 in April 2023.

Lifetime Allowance

The Lifetime Allowance (LTA) has been abolished, but there are still gaps in the legislation, with HMRC set to make further tweaks during this tax year.

However, two key new allowances are introduced:

• An individual 'lump sum allowance' set at £268,275, measuring the tax-free cash taken over someone's lifetime
• An individual 'lump sum and death benefit allowance' set at £1,073,100 - incorporating tax-free lump sums someone takes while alive, plus any serious ill health lump sum and lump sums paid out when they die

Money Purchase Annual Allowance

The Money Purchase Annual Allowance (MPAA) will remain at £10,000.

Tapered Annual Allowance

The Tapered Annual Allowance reduces the available annual allowance for those who have income exceeding both the 'adjusted income' and 'threshold income'. Adjusted income refers to all income, including bonuses, plus any pension contributions. Where this is over £260,000 individuals must check their threshold income, which allows for certain deductions to determine whether the individual is subject to the taper.

The minimum Tapered Annual Allowance and 'adjusted income' limit will remain at £10,000 and £260,000 respectively. The 'threshold income' limit also remains unchanged at £200,000. Under the Tapered Annual Allowance, for every £2 of adjusted income over this threshold, the individual's annual allowance is reduced by £1. The maximum reduction will be £50,000, thus reducing the annual allowance to £10,000 for anyone with adjusted income of £360,000 or above.

Section 5: Business taxation

Corporation tax

The rates of corporation tax will remain the same for the 2024/25 tax year.

*Companies with profits between £50,000 and £250,000 may be entitled to Marginal Relief.

VAT

VAT remains unchanged at 20%.