Complete Guide to UK Income Tax 2024-25
Understanding PAYE (Pay As You Earn)
PAYE is the UK system where employers deduct income tax and National Insurance directly from your wages before you receive them. This ensures you pay tax gradually throughout the year rather than in a lump sum.
Tax Allowances and Reliefs
Personal Allowance - £12,570
The amount you can earn before paying any income tax. This allowance is reduced by £1 for every £2 earned above £100,000, disappearing completely at £125,140.
Marriage Allowance
Transfer £1,260 of your Personal Allowance to your spouse if they earn more than you and you earn less than £12,570. Saves £252 per year.
Blind Person's Allowance
Additional £3,070 allowance if you're registered blind or severely sight-impaired.
England, Wales & Northern Ireland Tax Rates 2024-25
| Band | Taxable Income | Tax Rate |
|---|---|---|
| Personal Allowance | £0 - £12,570 | 0% |
| Basic Rate | £12,571 - £50,270 | 20% |
| Higher Rate | £50,271 - £125,140 | 40% |
| Additional Rate | Over £125,140 | 45% |
Scottish Income Tax Rates 2024-25
Scotland has its own income tax rates and bands, creating a more progressive system with five bands:
| Band | Taxable Income | Tax Rate |
|---|---|---|
| Personal Allowance | £0 - £12,570 | 0% |
| Starter Rate | £12,571 - £14,876 | 19% |
| Basic Rate | £14,877 - £26,561 | 20% |
| Intermediate Rate | £26,562 - £43,662 | 21% |
| Higher Rate | £43,663 - £125,140 | 42% |
| Top Rate | Over £125,140 | 47% |
The £100k Tax Trap
National Insurance Contributions 2024-25
| Income Band | Employee Rate | Employer Rate |
|---|---|---|
| £0 - £12,570 | 0% | 0% |
| £12,571 - £50,270 | 10% | 13.8% |
| Over £50,270 | 2% | 13.8% |
Student Loan Repayments 2024-25
| Plan | Threshold | Rate | Write-Off Period |
|---|---|---|---|
| Plan 1 | £22,015 | 9% | 25-30 years |
| Plan 2 | £27,295 | 9% | 30 years |
| Plan 4 (Scotland) | £27,660 | 9% | 30 years |
| Plan 5 (Post-2023) | £25,000 | 9% | 40 years |
Workplace Pension Auto-Enrolment
Employers must automatically enroll eligible employees into a pension scheme:
- Minimum Total: 8% of qualifying earnings (£6,240-£50,270)
- Employee: 5% (including tax relief)
- Employer: 3%
- Tax Relief: 20% added automatically, 40% reclaimable via Self Assessment
💰 Pension Power
If you earn £50,000 and contribute 10% (£5,000) to your pension, it only costs you £3,000 after tax relief. You avoid 40% tax on that income, and your employer adds £3,000 more. Total pension contribution: £8,000 for £3,000 out of pocket!
Tax-Free Savings & Investments
ISA (Individual Savings Account) - £20,000
Invest up to £20,000 per tax year completely tax-free. No tax on interest, dividends, or capital gains.
- Cash ISA: Savings accounts
- Stocks & Shares ISA: Investments in funds, shares, bonds
- Lifetime ISA: £4,000 limit, 25% government bonus (for first home or retirement)
- Junior ISA: £9,000 for children
Personal Savings Allowance
- Basic Rate Taxpayers: £1,000 tax-free savings interest
- Higher Rate Taxpayers: £500 tax-free savings interest
- Additional Rate: No allowance
Dividend Allowance - £500
First £500 of dividend income is tax-free. Above this, dividends are taxed at 8.75% (basic), 33.75% (higher), 39.35% (additional).
Capital Gains Tax Allowance - £3,000
Tax-free gains on asset sales. Above this, CGT is 10%/18% (basic rate) or 20%/24% (higher rate) depending on asset type.
Tax Planning Strategies for UK Taxpayers
- Salary Sacrifice: Exchange salary for pension contributions (saves Income Tax + NI)
- Marriage Allowance: Transfer unused allowance to spouse
- Gift Aid: Increases basic rate band by amount of charitable donation
- Splitting Income: Use spouse's lower tax rate for investments
- Timing: Defer income to next tax year or bring forward deductions
- Self Assessment: Claim additional expenses if available
Common Tax Reliefs and Allowances
- Working from Home: £6/week (£312/year) without receipts
- Professional Fees: Union dues, professional subscriptions
- Mileage Allowance: 45p/mile first 10,000 miles, 25p thereafter
- Uniform/Tool Allowance: Flat rate or actual costs
- Childcare Vouchers: Legacy scheme - up to £55/week tax-free
When to Complete Self Assessment
You need to file a Self Assessment if you:
- Are self-employed earning over £1,000
- Have rental income over £1,000
- Earn over £100,000
- Have untaxed income over £2,500
- Are a company director (unless PAYE only)
- Have capital gains above the annual exempt amount
Important Dates
- 5 April: Tax year ends
- 31 October: Paper tax return deadline
- 31 January: Online tax return + payment deadline
- 31 July: Second payment on account (if applicable)