According to the latest Autumn Budget, UK tax rates 2024 remain the same as last year. The only significant change is to employer National Insurance rates, which will come into effect in 2025. Find out more about current tax rates and tax reliefs here.
Personal Tax Allowance UK 2024
The UK tax allowance, or personal allowance, remains at £12,570.
Let’s take a closer look at the UK income tax brackets:
- Basic tax bracket: Still capped at £50,270, this bracket has no upward adjustment, meaning more taxpayers could face a “band increase” due to inflationary income growth. This effectively increases the marginal tax burden for those close to the next threshold, boosting tax revenue without an explicit rate increase.
- Top tax bracket: For 2024, incomes between £50,271 and £125,140 are subject to a rate of 40%. Without inflation indexation, taxpayers who fall into this bracket will face an effective increase in income tax, a hidden tax that impacts net income. This lack of adjustment encourages strategic deferral of income or restructuring for individuals close to this threshold to mitigate exposure. Reduction in the additional rate threshold: The additional rate of 45% applies at £125,140. Previously, the threshold was £150,000. High earners should consider this change in their deferral strategies, contributions to employer pension schemes, and any income-sharing opportunities. Within households, to stay below this threshold where possible.
- Key takeaway: The UK’s freeze on the tax threshold, particularly at the top rate, emphasizes income planning more. Professionals earning close to these limits should review their income allocation to maximize their after-tax income.
Capital Gains Tax Allowance and Inheritance Planning
In the UK, capital gains tax relief has been reduced from £6,000 to £3,000 for most assets and £1,500 for trusts, significantly reducing the opportunity to make tax-free gains. This impacts investors and property owners, increasing the need for effective asset disposal and inheritance planning. If you manage significant assets, you should consider inheritance tax implications and capital gains. Consulting an inheritance tax specialist can help you manage both capital gains tax and inheritance tax liabilities, maximizing tax efficiency and preserving more of your wealth for future generations.
Capital Gains Rates and Strategic Approaches
For basic rate taxpayers, the rate is 18%, and for higher rate taxpayers, it is 24%. However, with the halving of the tax credit, more of these gains will now be taxable, particularly for investors used to offset lower gains within the previous threshold.
Strategies to mitigate capital gains tax:
Using ISA wrappers: For those with equity-based investments, maximizing ISA contributions to protect capital gains becomes even more valuable in the current environment.
Planning asset disposals: Spreading disposals over several tax years and using a spouse’s allowances for asset transfers can help maximize combined allowances, particularly for married couples.
Charitable Contributions: Directing a portion of income toward charitable donations can reduce taxable capital gains by strategically taking advantage of tax breaks.
Corporation tax rates: marginal relief and implications for SMEs
In 2024, the UK corporation tax rate continues to vary according to profits, with a top rate of 25% for earnings over £250,000 and a small profits tax rate of 19% for profits below £250,000. £50,000. This two-tier system includes marginal relief for profits between £50,001 and £250,000, introducing a progressive, effective tax rate that can benefit small and medium-sized enterprises (SMEs).
Implications for business strategy:
- Profit management: Businesses on the fringe of the £50,000 threshold should consider whether profit deferral or reinvestment strategies could keep them within the small profits tax rate, thereby reducing their corporation tax liabilities.
- Maximizing marginal tax relief: For SMEs with profits in the marginal bracket, the effective tax rate increases gradually from 19% to 25%, creating a combined tax burden that may justify reviewing spending strategies and capital investments to remain at an optimal tax rate.
National Insurance Rates UK: Key Thresholds and Their Financial Implications
National Insurance (NI) contributions remain a significant financial consideration for employees and employers in the UK. Here’s a breakdown of the National Insurance contributions for employees and the self-employed:
Employees:
- For the 2024/25 tax year, employees will pay 12% on earnings between £242 and £967 per week and 2% on earnings above £967 per week.
Self-employed:
- Self-employed workers typically pay Class 2 contributions, a flat rate of £3.45 per week if their earnings exceed £12,570 per year.
- They may also pay Class 4 contributions as a percentage of their earnings: 9% on pays between £12,570 and £50,270, and 2% on incomes above £50,270.
Employers, stay informed! As part of the 2024 fall budget, employers will pay an additional 1.2%, increasing from 13.8% to 15%. This measure will come into effect from April 2025.
Strategic Tax Planning in 2024
The UK tax landscape continues to change, presenting both challenges and opportunities. At Legend Financial, we ensure that you not only adapt to these changes but also actively take advantage of current tax rates and tax breaks to your advantage. Our tax services will help you strategically structure your finances, optimize your income, and make the most of all available tax breaks and deductions.