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Personal tax

Income tax

Income tax rates

The government has stated that the basic rate will remain at 20%, the higher rate at 40% and the additional rate at 45% for 2024/25.

The government reduced the point at which individuals pay the additional rate of 45% from £150,000 to £125,140 for the current tax year and this will continue for 2024/25.

Income tax allowances

The income tax personal allowance and basic rate limit are fixed at their current levels until April 2028. They are £12,570 and £37,700 respectively. For those entitled to a full personal allowance, the point at which they will pay income tax at the higher rate will continue at £50,270.

Dividends

The government has also confirmed that, from 6 April 2024, the rates of taxation on dividend income will remain as follows:

  • the dividend ordinary rate - 8.75%
  • the dividend upper rate - 33.75%
  • the dividend additional rate - 39.35%.

As corporation tax due on directors' overdrawn loan accounts is paid at the dividend upper rate, this will also remain at 33.75%.

The government will reduce the Dividend Allowance from £1,000 to £500 from 6 April 2024.

Comment

It is estimated that the reduction in the Dividend Allowance will affect 4.4 million individuals in 2024/25 with the average loss to those affected being around £155.

The Scottish and Welsh governments will make their announcements on the devolved elements of taxation policy in due course.

Individual Savings Accounts

The government is freezing the limits on Individual Savings Accounts (ISAs) (£20,000), Junior Individual Savings Accounts (£9,000), Lifetime Individual Savings Accounts (£4,000 excluding government bonus) and Child Trust Funds (£9,000) for 2024/25.

However, a number of changes will be made to allow multiple subscriptions to ISAs of the same type every year and to allow partial transfers of ISA funds in-year between providers from April 2024.

Pension tax limits

A number of changes were made to the tax regime for pensions for 2023/24 and these include the following, which will remain at their 2023/24 levels for 2024/25:

  • The Annual Allowance (AA) is £60,000.
  • Individuals who have 'threshold income' for a tax year of greater than £200,000 have their AA for that tax year restricted. It is reduced by £1 for every £2 of 'adjusted income' over £260,000, to a minimum AA of £10,000.
  • No Lifetime Allowance (LA) charge.

In addition, as previously announced the LA of £1,073,100 will be abolished from 2024/25. Changes will be made to clarify the taxation of lump sums and lump sum death benefits, and the application of protections, as well as the tax treatment for overseas pensions, transitional arrangements, and reporting requirements.