Personal Tax Allowance 2024/25

personal-tax-allowance-guide

In personal finance, understanding your tax allowance is crucial for effective financial planning. The term “Personal Tax Allowance” refers to the amount of income an individual can earn each year without paying income tax. For the tax year 2024/25, this allowance remains a pivotal figure, influencing how much tax you pay on your earnings. 

It’s essential to stay informed, as tax regulations can evolve annually, impacting how much of your hard-earned income you get to keep. Keeping up-to-date with these changes ensures you can make informed decisions about your finances and plan accordingly for the upcoming fiscal years.

What is the Tax Allowance for 2024/25?

For the tax year 2024/25, the standard Personal Allowance stands at £12,570. This figure represents the amount of income you can earn before you need to pay Income Tax on it. Essentially, it acts as a tax-free threshold for your earnings. It’s important to note that not everyone receives the same Personal Allowance; eligibility can vary based on individual circumstances such as age, income sources, and any additional tax reliefs or benefits received. 

If your earnings fall below the Personal Allowance threshold, you won’t owe any Income Tax. Moreover, if you’re eligible for the Marriage Allowance and your earnings are under the threshold, you can transfer a portion of your allowance to your spouse or civil partner, potentially reducing their tax burden. Remember, the tax year in the UK starts on the 6th of April, and the Personal Allowance applies from this date onward for the subsequent 12 months. 

Understanding these allowances ensures you can optimise your tax planning and manage your finances effectively throughout the year. If your circumstances change mid-year, such as a decrease in income or cessation of work, you may be eligible for a tax refund to adjust for overpaid taxes.

What Income Tax Band am I in?

Understanding which Income Tax band you fall into can help you calculate how much tax you’ll owe based on your earnings for the tax year 2024/25:

Personal Allowance: You do not pay any Income Tax on earnings up to £12,570 for the tax year 2024/25. This allowance applies to most individuals, but it can vary based on factors like age and income sources.

Basic Rate: Income between £12,571 and £50,270 falls into the Basic Rate band, where you’ll pay Income Tax at a rate of 20%. This rate applies to most taxable income earned within this bracket.

Higher Rate: If your income exceeds £50,270 but is below £125,140, it falls into the Higher Rate band. Income in this range is taxed at a rate of 40%. This rate applies to earnings that surpass the Basic Rate threshold.

Additional Rate: Earnings over £125,140 are taxed at the Additional Rate of 45%. This highest rate applies to income that exceeds the Higher Rate band threshold.

Income Tax Rates and Bands

Income Tax rates for the tax year 2024/25 based on earnings, categorized by regions (England, Wales, Northern Ireland vs. Scotland):

EARNINGS

RATE

Under Personal Allowance (£12,570)

No income tax is payable

Over Personal Allowance to £50,270

20%

Over £50,270 to £125,140

40% (1)

Over £125,140

45%

Personal allowance decreases by £1 for every £2 earned between £100,000 and £125,140.

For residents of Scotland:

EARNINGS

RATE

Under Personal Allowance (£12,570)

No income tax payable

Over Personal Allowance to £14,876 (Starter Rate)

19%

Over £14,876 to £26,561 (Basic Rate)

20%

Over £26,561 to £43,662 (Intermediate Rate)

21%

Over £43,662 to £75,000 (Higher Rate)

42% (1)

Over £75,000 to £125,140 (Advanced Rate)

45%

Over £125,140 (Top Rate)

48%

The higher rate of 42% applies to income between £43,663 and £75,000 for most taxpayers in Scotland.

Contact us & Achieve Financial Success

Dividend Tax in 2024/25

In the tax year 2024/25, dividends attract different tax rates depending on your overall income and tax bracket. Dividends are taxed separately from your regular income and are subject to specific rates:

Basic Rate: If your total income, including dividends, falls within the basic rate band, you’ll pay a dividend tax rate of 8.75% on the amount above the £2,000 dividend allowance.

Higher Rate: For individuals whose income pushes them into the higher rate band, dividends are taxed at 33.75% on amounts exceeding the £2,000 dividend allowance.

Additional Rate: Those in the additional rate band face a dividend tax rate of 39.35% on earnings above the £2,000 allowance.

Understanding these rates is essential for accurately calculating your tax liability on dividends earned throughout the tax year. It’s worth noting that the £2,000 dividend allowance allows most taxpayers to receive some dividends tax-free, but amounts above this threshold are subject to the specified rates depending on your overall income level and tax bracket.

How Much Tax Relief Can You Get on Pension Contributions?

Planning for retirement involves understanding the tax relief available on pension contributions, which can vary depending on your income tax band. In the tax year 2024/25, individuals can benefit from tax relief on pension contributions as follows:

  • Basic Rate: Tax relief at 20% is available for pension contributions. This means for every £80 you contribute, £100 is added to your pension pot due to tax relief.
  • Higher Rate: Individuals in the higher rate tax bracket can claim tax relief at 40%. This means for every £60 contributed, £100 is added to your pension pot, reflecting the tax relief.
  • Top Rate: Tax relief at 45% applies to those in the top rate tax band. For every £55 contributed, £100 is added to your pension pot, taking into account the tax relief.

Understanding these relief rates helps maximise the benefits of pension savings. Additionally, there are specific limits on annual contributions that individuals should be aware of:

Contribution Type

Limit

Annual Allowance

£60,000

Money Purchase Annual Allowance

£10,000

Contact us & Achieve Financial Success

Closing Note

The Personal Tax Allowance for the tax year 2024/25 is essential for managing your finances effectively. This allowance dictates how much of your income is tax-free, influencing your overall tax liability. By staying informed about the current threshold of £12,570 and how it applies to different income brackets and tax rates, individuals can optimise their financial planning strategies. 

Whether you are considering pension contributions, dividend earnings, or simply assessing your income tax bands, knowing your Personal Tax Allowance ensures you can make informed decisions to maximise your tax efficiency and plan for a secure financial future.

Support Centre Contact Details

Our customer care team at Evirtual Accountants will respond to your queries as soon as possible. We aim to provide you with the best possible service and look forward to hearing from you soon.

  • Head Office: +44 1217 835392 
  • Email: office@evirtualaccountants.co.uk 
  • Address: 862-864 Washwood Heath Rd, Ward End, Birmingham, B8 2NG
  • Opening times: 9:00 am – 5:30 pm, Monday to Friday. 

Table of Contents

Secure Your Financial Future 
Get the Professional Accounting & Tax Management Services
Book An Appointment