Gear Up for the New Tax Year: What's Changing in 2024/2025

As the new tax year starts, it's essential to stay informed about these changes and their implications for your financial situation. By understanding the evolving tax landscape, you can maximise opportunities for savings and ensure sound financial planning for the year ahead.

Self Assessment

No notable changes to the process itself however you now have the opportunity to file your tax return for the current tax year promptly. Submitting it now offers several benefits, particularly in terms of cash flow planning. You gain clarity on the amount you owe, facilitating better financial planning and reducing uncertainty.

Also to note, filing your tax return ahead of time doesn't mean you need to make the payment immediately. The deadline for payment remains unchanged at January 31st, 2025. As penalties for late submission and payment steadily increase, submitting your return ahead of the deadline becomes even more critical. Getting your tax return submitted ahead of time provides peace of mind whilst reducing the risk of last-minute scrambling and stress.

Income Tax brackets

This is the amount of income you can earn before you start paying income tax. This remains unchanged at £12,570.

Alongside the Personal Allowance, the tax brackets have been retained. The basic rate, set at 20%, remains applicable to earnings within the standard income bracket. For those earning above this threshold, the higher rate of 40% applies. Additionally, individuals with earnings surpassing £125,140 are subject to the additional tax rate of 45%.

National Insurance

Building upon the 2% decrease implemented in January, an additional 2% reduction is happening. As a result, most employees will see their Class 1 National Insurance contributions reduced to 8% and self-employed earners will pay class 4 contributions of 6%offering a welcomed boost to take-home pay.

Class 2 NICs have been abolished.

Capital Gains Tax

This is the amount of profit you can make from selling assets before you have to pay capital gains tax.

The tax free allowance has reduced from £6,000 to £3,000.

The other change made (an a positive one) is the reduction of the tax rate on sales of a second residence (one which isn’t your main home) from 28% to 24%.

Savings income

The rules differ depending n the income tax bracket you are in Basic rate taxpayers are taxed on interest over £1,000, higher rate at £500 and additional rate tax payers have no tax free allowance.

ISAs still remain tax efficient up to a value of £20,000. There is a new ISA under consultation which is linked to stocks and shares, but this is still within the consultation stage. Potentially this will enable a further £5,000 allowance.

Dividend Income

These are earnings from shareholdings or funds from investment trusts. This has seen a significant change with the tax free allowance reducing to £500 from £1,000. The actual tax rates are unchanged.

Corporation Tax

This is the tax paid on a Company's annual profits.

No changes are to be made to this, the tax rate remains at 19% on profits up to £50,000, 25% for profits over £250,00 and an effective rate of 26.5% for profits that fall between those two thresholds for the 2024/25 tax year.

Now more than ever, it's essential to review and assess your finances and evaluating them against the current changes. Whether it's safeguarding savings, maximising opportunities or planning for the future, a comprehensive financial review can provide clarity and ensure that you are aware of all changes which can impact you.

Happy New Tax Year from Oakdene Accountancy Limited