The New Tax Year and What it Means for You
How to be more tax-savvy? With April in full swing and the 2024/25 tax year already underway since 6 April 2024 (ending on 5 April 2025), let's discuss the shifts and constants in our financial landscape.
Employee National Insurance Contributions: The main rate of Employee National Insurance contributions (NICs) has been reduced by an additional 2% for the 2024/25 tax year. This follows a previous 2% reduction earlier in the year, marking a significant decrease in NICs for employees.
Income Tax Thresholds: The personal allowance remains unchanged at £12,570. The basic rate continues at 20%, with the higher-rate threshold at £50,270 and the additional-rate tax threshold at £125,140. These thresholds are frozen until 2028, with different rates for Scottish taxpayers.
Dividend and Savings Income: Basic-rate taxpayers can still earn £1,000 interest on savings before paying tax. The allowance for higher-rate taxpayers remains at £500, and additional-rate taxpayers do not receive an allowance. However, the Dividend Tax allowance has been halved to £500 for the 2024/25 tax year.
Economic Outlook: Despite a brighter economic forecast (?!), real household disposable income per person is expected to be 3.5% lower than pre-pandemic levels, marking the largest reduction since records began. With a General Election on the horizon, financial security and the cost of living will be key issues.
What’s the takeaway? Use those tax breaks. Whether it’s ISAs, pensions, or capital gains, every little bit helps to secure your financial future. And with how things are going, we need all the help we can get.
How to Be Tax-Savvy?
Boost your pension contributions: Contributing to your pension secures your future and offers tax relief. The government tops up your contributions with a 20% basic-rate top-up, easing your tax burden.
Double-check your tax code: It’s crucial to ensure your tax code is spot-on to prevent overpaying or underpaying taxes. Checking your tax code regularly is a simple yet effective way to ensure your tax affairs are in order. You can find your tax code on your payslip, P45, or P60, or by accessing your personal tax account online through HM Revenue & Customs (HMRC) website.
Leverage ISAs: Maximise the benefits of Individual Savings Accounts (ISAs) to grow your savings tax-free. One key benefit of ISAs is the ability to earn interest and returns on your savings without having to pay any tax on them. This means that any interest earned on your ISA savings, whether from cash ISAs or returns on investments within a Stocks and Shares ISA, remains entirely yours to keep. The ISA allowance for 2024/25 is set at £20,000. The ISA limit for Junior ISAs is £9,000 for 2024/25.
Make use of marriage allowance: The marriage allowance lets an individual to give up 10% of their personal allowance to their spouse or civil partner. 20% of this allowance is then given as a reduction in the recipient’s tax bill. This can result in anything up to a £252 tax saving for the couple.
Don't forget Gift Aid: Boost the impact of your charitable donations with Gift Aid. This allows the charity to reclaim the basic rate of tax on your donation, and if you’re a higher-rate taxpayer, you can claim additional tax relief.
Look into Capital Gains exemptions: This exemption can potentially reduce your overall tax bill when selling assets such as stocks, second homes, or other investments. The specific threshold for the CGT exemption may vary from year to year, so it's advisable to stay informed about the current allowance.
Seek guidance: Tax matters can be intricate. If you’re unsure about your tax situation, consider consulting a professional to ensure you’re not overlooking any opportunities or obligations.