Understanding UK Tax Brackets 2024/2025 can make a real difference in your financial planning whether you are:

• Individuals: You’ll gain valuable insight into how income rates of tax and personal allowances apply to your earnings. This will help you manage your budget more effectively and avoid overpaying taxes. We’ll also show you ways to make the most of your allowance to reduce your overall tax burden.
• Business owners: Understanding the rate of tax helps you make informed decisions about how to draw profits from your business—whether through dividends or salary. We’ll help you explore how the tax brackets impact your business income so you can choose the most efficient strategy.
• Self-employed individuals: If you have multiple income streams, it’s essential to understand how tax rates and allowances work together. We’ll guide you through optimising your taxes and minimising your liability across your main business and side hustles.
• Employers: Payroll management is crucial, and understanding the latest income tax rate and personal allowances will help you stay compliant while effectively budgeting for employee salaries and expenses.
• Freelancers or contractors: Managing multiple income sources can be challenging, but we’ll provide the information you need to ensure you’re taxed efficiently and can take advantage of allowances and deductions to reduce your tax bill.
• Accountants or financial advisors: Keeping up with the 2024/2025 tax brackets and allowances will help you provide accurate and supportive advice to clients, enabling them to minimise tax liabilities and stay compliant with regulations.
• Startups or small business owners: Tax rates can significantly impact your business’s financial health. By planning around allowances and tax-efficient strategies, you’ll be in a stronger position to retain profits and support your business growth.

What is income tax?

Income tax is a financial obligation that individuals pay to the UK government based on their earnings from various sources, including employment, self-employment, and rental income from properties.

The rate of Income Tax you pay depends on how much of your taxable income is above your Personal Allowance in the tax year —set at £12,570 for the 2023-24 and 2024-25 tax years—and any other eligible tax relief. For self-employed individuals, taxable income exceeds the trading allowance of £1,000.

Additionally, certain fringe benefits provided by an employer, such as a company car or private health insurance, may also be subject to income tax.

Once tax emotions are applied, income is categorised into different bands, each taxed at varying rates. Notably, income from savings, dividends, and pensions typically incur a lower tax rate than ordinary income. Furthermore, earnings from employment and self-employment are also subject to National Insurance contributions and income tax.

GOV.UK Tax-Free Personal Allowances

Allowances such as the blind person’s allowance and the married couple’s exemptions are established by the UK government and apply consistently across England, Wales, Scotland, and Northern Ireland. Due to the devolution of powers, Wales and Scotland have the authority to set their rates, which can differ from those in England and Northern Ireland.

Income rates and allowances for England and Northern Ireland

The standard tax brackets show how your income will be taxed before any deductions. In England and Northern Ireland, income rates of tax are applied progressively, with different portions of your income falling into distinct bands. The table below outlines the income bands and their respective tax rates for the financial years 2023/24 and 2024/25.

Standard income tax rates and allowances for 2023/24 & 2024/25 for England and Northern Ireland after personal allowance

Once your personal exemption is deducted, the remaining portion of your income is subject to taxation. The rates applied to this taxable income are critical for calculating how much tax you will owe. The table below shows how these rates apply after accounting for allowances, giving a clearer picture of your post-deduction tax liabilities.

Welsh tax rates and bands 2023/24 & 2024/25

Wales follows a similar rate of income tax structure to England and Northern Ireland but retains the ability to adjust rates. For 2023/24 and 2024/25, the Welsh government has maintained alignment with the broader UK tax bands. The table below shows the applicable rates for Welsh taxpayers.

Scottish income tax rates 2023/24 & 2024/25

In Scotland, income tax bands differ from the rest of the UK, with more granular tax rates. This system introduces additional bands, providing a different tax structure for Scottish taxpayers.

Read also: How will the Autumn Budget 2024 impact businesses?

Dividends tax rates and dividend allowance 2023/24 & 2024/25

Dividend income is taxed separately from regular earnings, with distinct rates applied depending on the amount earned. The table below highlights the rates for dividend income, giving you a clearer understanding of how much tax will be owed on any dividends received during the 2023/24 and 2024/25 tax years.

PAYE and tax codes as means of income tax administration

Most income in the UK is taxed at source through the Pay-As-You-Earn (PAYE) system. Employers deduct taxes directly from employees’ salaries and pass them to HMRC (Her Majesty’s Revenue and Customs). The tax code assigned by HMRC guides employers or pension providers on how much tax to deduct from income. This system helps streamline income tax administration and ensures taxes are paid yearly.

For the 2024-25 tax year, the most common tax code is 1257L, which applies to most employees. If you live in Scotland or Wales, the tax codes may be adjusted with prefixes like “S” (e.g., S1257L) or “C” (e.g., C1257L) to reflect regional tax rates. Your specific tax code might differ depending on factors like where you live, your exemption and the rate of tax you need to pay. Your tax code is on your payslip, P60, or pension statement.

You may also have an emergency tax code if your employer is uncertain about your tax code. These include M1 (monthly pay), W1 (weekly pay), or X, which indicate non-cumulative taxation. These codes only apply tax based on your earnings for that specific pay period rather than your annual cumulative earnings. They are typically temporary until HMRC assigns the correct tax code.

Find out more: Employer PAYE Reference Number Explained.

Self-assessment is a means of income tax administration for the self-employed and unemployed.

Self-assessment is a method of income tax administration primarily used by the self-employed and individuals whose income is not taxed under the PAYE system, including those unemployed but earning untaxed income. Taxes are reported through self-assessment tax returns for the self-employed and those receiving untaxed income (such as freelance or investment income).

After the end of the tax year, individuals must declare their income from various sources, along with any tax-privileged deductions such as pension contributions or charitable donations. HMRC then calculates the tax owed based on this information. Self-assessment tax returns must be submitted by 31 October if filed on paper or by 31 January if filed online.

Learn more: How to Register for Self Assessment Tax Return on GOV.UK.

Employee and Employer National Insurance Contributions (NICs) rates 2023/24 & 2024/25

Below are the standard thresholds and rates at which employees and employers pay national insurance contributions.

How does inheritance tax work?

Inheritance Tax is a tax on the estate of a deceased person, including their money, property, and possessions. While you must report the value of every estate, there is no Inheritance Tax payable if:

• The estate’s total value is below the £325,000 threshold.
• Anything above the £325,000 threshold is left to a spouse, civil partner, charity, or a community amateur sports club.

If the estate exceeds the threshold and is left to others, tax is applied to the amount above the threshold at the standard rate of 40%.

Can I claim both personal and marriage allowance when submitting my tax return?

No, you cannot claim both at the same time. The Personal Allowance is the income an individual can earn before paying tax, set at £12,570 for most people in the 2024/2025 tax year. On the other hand, the Marriage Allowance allows one spouse or civil partner earning less than the Personal Allowance to transfer up to £1,260 of their unused allowance to the other. This transfer reduces the recipient’s tax bill but makes it impossible to claim both allowances simultaneously.

What is the capital gains tax if I pay basic rate or higher rate income tax?

Capital gains tax rates depend on your total taxable income, which can come from your salary and the chargeable asset that brings you the gains, such as property, shares, cryptocurrencies, or any other investment.

What are the dividend income and tax rates for the tax year 2024 – 25?

The dividend tax rates are based on your total income, which is your salary and dividend income. The dividend tax-free allowance for the 2024-2025 tax year is £500. Any dividends received over this amount will be taxed at the following rates.

How do I pay income tax?

The way you pay income tax depends on whether you’re employed or self-employed:

• If you are employed, income tax is automatically deducted from your salary through the Pay-As-You-Earn (PAYE) system. Your employer will handle this process, so the tax is taken at source before you receive your wages.
• If you are self-employed and earn more than the £1,000 trading allowance, you are responsible for paying your tax through the Self-Assessment system. You will need to file a tax return and can make payments online, by phone, or through other approved methods.

What is an ideal new tax year checklist?

Entering a new tax year requires careful planning to stay compliant and manage your finances effectively. Here’s a quick checklist to help you prepare, whether you’re self-employed or running a limited company.

For Limited Companies

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