2024/25 Tax year updates & housekeeping for individuals

With the new tax year underway, this article provides a summary of relevant tax changes for individuals together with a reminder of some simple tasks to help keep your own (or your clients’) tax affairs in order. We’ve also included a handy table of the key personal tax changes for the 2024/25 tax year.

Income Tax & Capital Gains Tax

The tax-free personal allowance for 2024/25 remains at £12,570, and is expected to remain at that amount until April 2028. The levels of income from which higher and additional rate tax is payable in England, Wales and Northern Ireland have also previously been frozen until 2028. Different income tax bands and tax rates apply to Scottish taxpayers, the most significant of which are covered below.

Freezing the personal allowance and tax rate thresholds means these amounts are not keeping up with inflation. Where incomes rise with inflation, individuals get to keep less of any extra income they receive each year.   

Taxation of investment income and gains

Those with unearned income may need to review their investment approach for the new tax year, as the tax-free dividend allowance (for shares not held in an ISA) was halved to £500 with effect from 6 April 2024, having already been halved the year before.

Similarly, the Capital Gains Tax (CGT) annual exemption has been halved again from £6,000 to £3,000 for the tax year beginning 6 April 2024. The impact of this change will be offset to some extent for higher rate taxpayers who dispose of residential property, as the CGT rate applying to such transactions fell from 28% to 24% with effect from 6 April 2024.

The Personal Savings Allowance is unchanged, so basic rate taxpayers continue to benefit from a £1,000 tax-free band for interest income (commonly from bank and building society accounts, or unit trust investments), whilst higher-rate taxpayers can earn £500 of interest tax-free. Those paying at additional rates of tax (45% on earnings or self-employment profits) are not entitled to a Personal Savings Allowance.

The Individual Savings Account (ISA) limit remains at £20,000 for the new tax year, and neither income tax nor CGT apply to investments held within an ISA. With the reduction in dividend and CGT allowances, holding investments in ISAs may be more beneficial than ever, so it is important to make use of the permitted investment amount as far as possible. Investment advice may be necessary before changing any investment strategy.

With the reduced allowances for dividends and the lower CGT annual exemption, more people will need to consider whether they now need to complete a tax return, and register for Self-Assessment if required.

National Insurance Contributions (NICs)

Whilst the thresholds for Class 1 NICs for employees and employers are unchanged for the new tax year, the main rate of Class 1 NICs payable by employees fell to 8% from 6 April 2024. The rate in the previous tax year was 12% until 6 January 2024, when it was reduced to 10%. The main rate of Class 1 NICs applies to earnings for most employees between £12,570 and £50,270, above which Class 1 NIC is due at 2%.

The rate of Class 1 NICs payable by employers remains unchanged at 13.8% on earnings over £9,100 per year. Full details can be found on the Government’s NIC rates and thresholds pages. Class 1A NICs also remain payable by employers at 13.8% on the value of most benefits in kind provided to their employees.

For the self-employed, Class 4 NICs are payable at the main rate on self-employment profits between £12,570 and £50,270. From 6 April 2024, the main rate of Class 4 NICs fell from 9% to 6%. Class 4 NICs remain payable at 2% on profits above £50,270.

Self-employed individuals have also previously had to pay Class 2 NICs at a weekly flat-rate (£3.45 per week from 6 April 2023) where their profits are greater than the Lower Profits Limit (£12,570). From 6 April 2024, payments of Class 2 NIC are no longer required, potentially saving the self-employed £179.40 over the tax year. Class 2 NIC now only remains on a voluntary basis for those earning under the Small Profits Limit of £6,725. Please see our separate article ‘Class 2 National Insurance – what’s changing from April 2024?’ for further details.

High Income Child Benefit Charge

Those receiving Child Benefit who exceed certain income thresholds can be caught out by unexpected tax consequences in the form of the High Income Child Benefit Charge (HICBC).

We’ve made a short video which explains the basics of the HICBC but, in brief, the HICBC results in those on ‘high’ incomes having to repay some or all of the Child Benefit received by their household each tax year by completing a Self-Assessment tax return. This applies even if the Child Benefit is claimed by their partner, and even if the couple are not married or in a civil partnership.  Individuals who are affected by the HICBC should register for Self-Assessment before 6 October 2024 if they need to file a tax return for the tax year ended 5 April 2024.

Until 5 April 2024, the HICBC applied where the higher earner in a household had adjusted net income of more than £50,000, meaning a Self-Assessment tax return had to be filed to pay the charge. By the time their income reached £60,000, affected individuals had to repay the full amount of Child Benefit received in the year via Self-Assessment.   

From 6 April 2024, the HICBC only applies where the higher earning parent/guardian in a household has adjusted net income of £60,000 or more. At the same time, the rate at which the HICBC works to claw back Child Benefit has been halved. For the current tax year onwards, 1% of Child Benefit will be repayable for every £200 of income over the £60,000 threshold, so full clawback won’t apply until the higher earning parent or guardian’s income reaches £80,000.

These changes mean parents who have previously opted out of Child Benefit payments may want to consider restarting their claims. Parents who have never claimed should also consider claiming Child Benefit. Those with income below the £60,000 HICBC threshold will benefit from extra financial support, but there are advantages even for families where one parent or guardian earns over £80,000. In this situation, Child Benefit payments will be clawed back in full via the HICBC, but it is possible to claim Child Benefit but opt out of receiving payments. This means the child will automatically be issued with a National Insurance number once they reach age 16. Claiming Child Benefit also provides entitlement to State Pension credits until the youngest child is 12 years old, which is especially valuable if a parent or guardian has little or no income of their own.

For those affected by the HICBC, Gift Aid payments and certain pension contributions are deductible from total income when calculating ‘adjusted net income’, and can therefore offer a way of not incurring the HICBC and retaining Child Benefit received even where income exceeds £60,000.

More detailed guidance on the HICBC is available from the Low Income Tax Reforms Group (LITRG).

Self-Assessment threshold

For the tax year ending 5 April 2025, the income threshold above which a Self-Assessment tax return has to be filed has been removed. This means high earners with ‘simple’ tax affairs (eg employment income only, which is taxed at source through Pay As You Earn) will not have to complete a tax return for the 2024/25 tax year, or beyond. Whilst this may sound like a blessing, we previously wrote an article outlining our concerns with the move.

Individuals with income over £150,000 will still need to file a tax return for the year ended 5 April 2024. These are due to be filed online by 31 January 2025, with the registration deadline falling on 5 October 2024 for those who didn’t file a tax return for the previous year.

Scottish taxpayers

The Scottish Government has powers to set different tax rates and bands for non-savings income, which includes salaries, self-employment profits, pensions, and property income. These tax rates and bands apply to Scottish taxpayers only.

From 6 April 2024, a new ‘advanced rate’ of Scottish income tax has been introduced for non-savings income between £75,001 and £125,140. Changes have also been made to a number of the other Scottish income tax rates and bands.

VAT registration threshold

From April 2024, the turnover threshold for compulsory VAT registration has increased from £85,000 to £90,000. Self-employed individuals running their own small business can therefore enjoy slightly higher sales figures before they need to register for VAT.

Summary table – key personal tax changes for 2024/25

	Was (2023/24)	Now (2024/25)
Employees National Insurance (main rate)	12% / 10%	8%
Class 4 self-employed National Insurance (main rate)	9%	6%
Class 2 self-employed National Insurance	£3.45	N/A*
High Income Child Benefit Charge threshold	£50,000	£60,000
Dividend allowance	£1,000	£500
CGT annual exemption	£6,000	£3,000
Higher rate CGT for residential property	28%	24%
VAT registration threshold	£85,000	£90,000

 

*Class 2 NICs can still be paid voluntarily, for instance by individuals with trading profits below the Small Profits Threshold (£6,725), or by certain individuals working overseas. See our separate article on the changes to Class 2 NICs from April 2024.

General ‘housekeeping’ for the new tax year

The following points are commonly overlooked, but worth revisiting to check whether any action is needed early in the tax year.

PAYE codes

Employees can review what goes into their PAYE code in their Personal Tax Account, via the HMRC app or by checking any hard copies received through the post. HMRC have also launched an interactive ‘check what your tax code means’ tool, which provides a breakdown of what the letters and numbers in the tax code mean, and an estimate of how much tax is likely to be payable on the employment income.  We’ve also made a short video on how to check or change your tax code.

If anything doesn’t look right in the tax code, individuals without a tax adviser can make the necessary changes via their Personal Tax Account or the HMRC app, or can contact HMRC to discuss any concerns with the code.

Taxpayers who employ an accountant or agent should send their adviser copies of any updated tax codes they receive, as agents are rarely notified of new PAYE codes, and in some cases cannot access the updated versions via their HMRC agent logins.

Employers cannot change a PAYE code without receiving fresh instructions from HMRC, so the onus is on the individual to check their coding notice, or to ask their tax adviser for help.

Marriage Allowance Transfer

Where one person in a marriage or civil partnership doesn’t use their full tax-free personal allowance (£12,570), 10% of that amount can be transferred to their spouse/civil partner to reduce the amount of tax payable by up to £252.

This claim but can be backdated by up to four years and must be made by the person giving up part of their personal allowance (ie the lower earner in the couple). Further details, including how to apply, are available at https://www.gov.uk/marriage-allowance.

Summary

The start of the new tax year is the perfect time for a quick review of your personal tax affairs. Considering the above measures now and making any changes necessary to your financial affairs could improve your tax position over the remainder of the tax year, potentially simplifying your tax affairs and leaving you with more cash in your pocket.