The standard personal tax threshold for the 2024/25 tax year is £12,570, which is the amount of income you can earn before you start paying Income Tax. This “Personal Allowance” has been frozen at this level since April 2021 and is currently legislated to remain at £12,570 until April 2028. For earnings above this threshold, the Basic Rate of 20% applies to income between £12,571 and £50,270, while the Higher Rate of 40% is charged on income between £50,271 and £125,140.
Scottish Income Tax Differences
Scotland operates a devolved tax system with its own distinct bands and rates for non-savings and non-dividend income. In the 2024/25 tax year, the Scottish Government introduced a new Advanced Rate to further differentiate the tax burden for mid-to-high earners.
The Six-Tier Scottish System
The Scottish system is notably more progressive than the rest of the UK, with lower-income earners paying a 19% “Starter Rate,” while higher earners face a top rate of 48%. For 2025/26, the Starter and Basic rate thresholds have been slightly adjusted to account for inflation, though the higher-tier thresholds remain frozen.
Starter Rate (19%): £12,571 – £14,876 (Increases to £15,397 in 25/26)
Basic Rate (20%): £14,877 – £26,561 (Increases to £27,491 in 25/26)
Intermediate Rate (21%): £26,562 – £43,662
Higher Rate (42%): £43,663 – £75,000
Advanced Rate (45%): £75,001 – £125,140
Top Rate (48%): Above £125,140
National Insurance Threshold Changes
National Insurance (NI) underwent significant shifts in 2024, with the main employee rate cut from 10% to 8% in April 2024. These changes were designed to offset some of the “fiscal drag” caused by the frozen Income Tax thresholds.
[Table: National Insurance Rates 2024-2026]
| Category | 2024/25 Rate | 2025/26 Rate | Threshold |
| :— | :— | :— | :— |
| Employee (Class 1) | 8% | 8% | £12,570 – £50,270 |
| Self-Employed (Class 4) | 6% | 6% | £12,570 – £50,270 |
| Employer (Class 1) | 13.8% | 15% | Variable (see below) |
A major change for the 2025/26 tax year is the reduction of the Employer’s Secondary Threshold. Starting April 6, 2025, employers must pay NI on employee earnings above £5,000 per year (down from £9,100), and the rate increases to 15%.
Dividend and Capital Gains Allowances
Taxpayers who receive income from investments or the sale of assets have seen their tax-free allowances sharply reduced over the last two years. These “stealth” tax increases mean that more casual investors are now required to file Self Assessment returns.
Dividend Allowance
The tax-free Dividend Allowance was slashed to £500 starting in April 2024 and remains at this level for the 2025/26 tax year. Any dividends received above this amount are taxed at 8.75% (Basic), 33.75% (Higher), or 39.35% (Additional), though a 2% increase to the basic and higher rates is proposed for April 2026.
Capital Gains Tax (CGT)
The annual exempt amount for Capital Gains Tax was reduced to £3,000 in April 2024. This applies to profits made from selling assets such as second homes, shares not held in an ISA, or valuable personal possessions. For the 2025/26 tax year, this threshold remains at £3,000, significantly lower than the £12,300 allowance seen in 2022/23.
Inheritance Tax Thresholds to 2030
Inheritance Tax (IHT) thresholds have been one of the most static areas of UK tax law, with the main “Nil-Rate Band” frozen at £325,000 since 2009. Current legislation has extended this freeze until at least April 2030.
Nil-Rate Band: £325,000 (Tax-free limit for all estates).
Residence Nil-Rate Band: £175,000 (Additional allowance for passing a main home to direct descendants).
Spousal Transfer: Married couples and civil partners can combine their allowances, effectively leaving up to £1 million tax-free.
From April 2026, new rules will cap the 100% relief available for agricultural and business assets at £1 million, after which a 50% relief applies (resulting in an effective tax rate of 20%).
Practical Information and Planning
Navigating the tax year requires careful timing and an understanding of the deadlines set by HM Revenue and Customs (HMRC).
Tax Year Dates: The UK tax year runs from April 6th to April 5th the following year.
Self Assessment Deadline: Online returns for the 2024/25 tax year must be submitted by January 31, 2026.
Marriage Allowance: If one partner earns less than the £12,570 threshold, they can transfer £1,260 of their allowance to their higher-earning spouse, saving up to £252 in tax.
ISA Limits: The annual ISA investment limit remains at £20,000 for both the 2024/25 and 2025/26 tax years.
Tips for Taxpayers: Consider making pension contributions to reduce your “adjusted net income.” This is particularly effective for those in the £100,000–£125,140 bracket to help “regain” their Personal Allowance.
FAQs
What is the tax-free allowance for 2024/25?
The personal tax-free allowance is £12,570. You do not pay Income Tax on any earnings up to this amount, provided your total income is below £100,000.
Is the tax threshold increasing in 2025?
No, the Income Tax thresholds are currently frozen until April 2028. This means as wages rise with inflation, more people will move into higher tax brackets, a process known as fiscal drag.
How much can I earn before paying 40% tax in 2024?
The Higher Rate threshold starts at £50,271. You pay 40% tax only on the portion of your income that falls between £50,271 and £125,140.
What are the Scottish tax bands for 2025/26?
Scotland has six bands, including a 19% Starter Rate and a 48% Top Rate. In 2025/26, the Starter Rate threshold increases to £15,397, and the Basic Rate threshold to £27,491.
How much is the Dividend Allowance in 2024?
The Dividend Allowance is £500. This is the amount of dividend income you can receive before paying any dividend tax.
What is the Capital Gains Tax limit for 2024/25?
The annual exempt amount for Capital Gains Tax is £3,000. Profits exceeding this amount are taxed at rates depending on your income and the type of asset sold.
When does the 2024/25 tax year end?
The 2024/25 tax year ends on April 5, 2025. The new 2025/26 tax year begins the following day, April 6, 2025.
Do I lose my personal allowance if I earn over £100k?
Yes, your Personal Allowance is reduced by £1 for every £2 earned over £100,000. It is completely removed once your income reaches £125,140.
What is the National Insurance rate for employees in 2024?
As of April 2024, the main rate of Class 1 National Insurance for employees was reduced to 8% on earnings between the primary threshold and the upper earnings limit.
How much can a couple leave tax-free for Inheritance Tax?
A married couple or civil partners can potentially leave up to £1,000,000 tax-free by combining their Nil-Rate Bands (£325k each) and Residence Nil-Rate Bands (£175k each).
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