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New Tax Year – New Allowances

Gresham Wealth

The new 2024/25 tax year is here. With several changes to allowances live from 6th April, it is important to review your financial plan each year. 

Here we provide a straightforward overview of the main tax allowances for 2024/25 to help you make the most of your money this year.

ISA Allowance: £20,000 for each adult, across all ISAs. This includes a £4,000 allowance for Lifetime ISA (for eligible individuals). The rules on ISAs recently changed, allowing more than one ISA of the same type in a tax year, up to the maximum limit. 

Junior ISA Allowance: This remains at £9,000 a year. In a change to the previous rules, those aged 16-17 can now only invest up to £9,000 in a Junior ISA and will not have access to the adult ISA allowance until they turn 18.

Pension Annual Allowance: Up to £60,000 can be invested this year for those with eligible earnings. It is worth noting that the Annual Allowance could be as little as £10,000 for high earners (due to tapering) or if you’ve accessed income from a pension (Money Purchase Annual Allowance). 

Pension Lifetime Allowance: This is now abolished and replaced with two new allowances; the Lump Sum Allowance (LSA) will cap the amount of tax-free cash which can be taken and is set at £268,275 for those without protection. The Lump Sum and Death Benefit Allowance (LSDBA) places a cap on tax-free lump sums paid during the member’s lifetime, and on death before age 75. It has been set at £1,073,100 for those without protection and is reduced by any LSA used.

National Insurance: For employees the Class 1 employee rate of NICs has reduced to 8%. For the self-employed, the Class 4 NICs have reduced to 6%.

Personal Allowance: This has remained the same, where an individual can earn up to £12,570 in income before paying tax (England and Wales). For those earning more than £100,000 in the tax year, the Personal Allowance will be reduced by £1 for every £2 earned above that amount.

High Income Child Benefit Charge: There has been an increase to the threshold at which the highest earner starts to suffer the tax  charge, up from £50,000 to £60,000 and the rate of withdrawal will be £1 for every £200 of income. Child benefit will therefore be extinguished once the highest earner’s income exceeds £80,000.

Personal Savings Allowance: This refers to the amount of interest you can earn on savings before tax becomes payable. This allowance has stayed the same this tax year at £1,000 for basic rate taxpayers and £500 for higher rate taxpayers.

Dividend Allowance: The tax-free dividend allowance has been cut from £1,000 to £500. Any income received from dividends above the allowance is subject to tax at an individual’s marginal rate. The dividend tax rates for basic rate, higher rate and additional rate taxpayers will remain at 8.75%, 33.75% and 39.35%.

Capital Gains Tax Allowance: This has reduced to £3,000 per person for this tax year. Any realised gains above the allowance are subject to tax at an individual’s marginal rate. 

Please note that all the above relate to England and Wales only. Different allowances and rates may be applicable in Scotland.

To discuss any of the above information or how to make the most of your allowances during this tax year, please contact our team.

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