Guide to UK Taxes for 2024/25 - What Every UK Resident Needs to Know

Table of Contents

1. Personal Direct Taxes
2. Indirect Taxes and Duties
3. Property and Land Taxes
4. Taxes for Business Owners
5. Other Common Taxes in the UK
6. Expert Tax Tips and FAQs

1. Personal Direct Taxes

Direct taxes in the UK are taxes directly levied on an individual's income, profits, and assets. These include Income Tax, National Insurance Contributions (NICs), Capital Gains Tax, and Inheritance Tax.

Income Tax

Income Tax is one of the most well-known direct taxes in the UK, charged on earnings from salaries, business profits, pensions, and rental income. The tax-free Personal Allowance is £12,570, allowing individuals to earn up to this amount without paying Income Tax.

• Income Tax Rates for England, Wales, and Northern Ireland:
• Basic rate (20%): £12,571 to £50,270
• Higher rate (40%): £50,271 to £125,140
• Additional rate (45%): Above £125,140
• Income Tax Rates in Scotland: Scottish residents pay slightly different rates.
• Starter rate (19%): £0 to £2,306
• Basic rate (20%): £2,307 to £13,991
• Intermediate rate (21%): £13,992 to £31,092
• Higher rate (42%): £31,093 to £125,140
• Top rate (47%): Above £125,140

National Insurance Contributions (NICs)

National Insurance Contributions are a percentage of income deducted from employees’ wages, helping fund state benefits such as pensions and unemployment support. The rates vary depending on income and employment status, with higher earners contributing more.

• For employed individuals (Class 1): Earnings above £242 per week are taxed at 13.25%, while earnings over £967 per week are taxed at 3.25%.
• Self-employed (Class 2 & 4): Class 2 contributions are £3.45 weekly, and Class 4 contributions apply at 10.25% for profits between £12,570 and £50,270, then 3.25% above £50,270.

Capital Gains Tax (CGT)

CGT is payable on the profit from selling assets that have increased in value, like investments and property (excluding one’s main residence, under certain conditions).

• Rates for Individuals: Basic rate taxpayers pay 10%, while higher and additional rate taxpayers pay 20%.
• Special Rate for Residential Property: 18% for basic rate taxpayers and 28% for higher rate taxpayers.

Inheritance Tax (IHT)

IHT is a tax on the estate (property, money, and possessions) of someone who has died, applied at 40% on estates exceeding £325,000. However, if assets are passed to a spouse, civil partner, or charity, the tax may be reduced.

2. Indirect Taxes and Duties

Indirect taxes are not directly levied on personal income but on goods and services, meaning they often affect individuals indirectly as part of the purchase price.

Value Added Tax (VAT)

VAT is a 20% tax on most goods and services sold in the UK, with a reduced rate of 5% for specific items like children’s car seats and home energy. Essential items like food and children's clothing are often exempt.

Insurance Premium Tax (IPT)

IPT is charged on most insurance policies in the UK. Insurers collect IPT from customers as part of the premium and pass it on to HMRC. Rates vary, but standard IPT is set at 12%.

Excise Duties

These are charged on certain products like alcohol, tobacco, and fuel, both to discourage excessive consumption and to generate revenue. Rates are usually based on the quantity or value of the product.

3. Property and Land Taxes

Stamp Duty Land Tax (SDLT)

SDLT is paid when purchasing property or land in England and Northern Ireland. First-time buyers enjoy relief on properties up to £425,000.

• Residential Rates:
• Up to £250,000: 0%
• £250,001 to £925,000: 5%
• £925,001 to £1,500,000: 10%
• Above £1,500,000: 12%

For second properties or buy-to-let purchases, an additional 5% surcharge applies.

Council Tax

Council Tax funds local services like waste collection and street cleaning, and it is calculated based on the property’s valuation band. Single-occupant households and eligible low-income residents may qualify for reductions.

4. Taxes for Business Owners

Business taxes can differ significantly from personal taxes and may include Corporation Tax, VAT registration, and special rates on dividends.

Corporation Tax

This tax applies to company profits, and the 2024/25 main rate is 25%, with a small profits rate of 19% for companies making up to £50,000.

Self-Employed Income Tax

Self-employed individuals, categorised as sole traders, pay Income Tax on profits through Self-Assessment. National Insurance also applies to profits above the £12,570 threshold.

Taxes on Dividends

Dividend income exceeding the annual allowance (£500 as of April 2024) is taxed:

• Basic rate: 8.75%
• Higher rate: 33.75%
• Additional rate: 39.35%

5. Other Common Taxes in the UK

Vehicle Tax

Vehicle owners pay tax based on their vehicle's emissions. Zero-emission vehicles are usually exempt, while high-emission vehicles incur a higher rate.

Air Passenger Duty (APD)

APD is a tax on airline tickets for departing flights from the UK, with different rates based on destination and class of travel.

Environmental Taxes

Environmental taxes include the Climate Change Levy and the Aggregates Levy, both designed to reduce pollution and encourage sustainable practices among businesses.

6. Expert Tax Tips and FAQs

Tax Relief and Allowances

The UK tax system offers various reliefs and allowances to reduce taxable income, including:

• Personal Savings Allowance: Basic rate taxpayers can earn up to £1,000 in savings interest tax-free.
• Marriage Allowance: Allows a spouse to transfer up to £1,260 of their unused Personal Allowance to their partner.
• Gift Aid: Donations to registered charities qualify for tax relief, allowing charities to reclaim basic rate tax on donations.

How Do Expats and Non-Domiciled Residents Pay Tax?

Expats in the UK generally pay tax on UK income but may be exempt from foreign earnings. Non-domiciled residents can elect to use the remittance basis, whereby they only pay UK tax on foreign income if it is brought into the country.

Tax Deadlines and Filing

For individuals, the UK tax year runs from April 6 to April 5. The deadline for filing paper Self-Assessment returns is October 31, while online filings are due by January 31. Corporation tax returns are generally due 12 months after the end of the accounting period.

Avoiding Tax Penalties

Staying on top of tax filings is essential to avoid late fees and penalties. Filing late, even by a day, incurs a £100 fine, which increases the longer the tax remains unpaid. Keep accurate records and consult a tax adviser if you’re unsure about any liabilities.

How to Access Professional Help

If managing taxes feels overwhelming, professional advice can help you maximise your allowances and ensure compliance with the latest tax rules. Reach out to a qualified tax consultant or advisor to make the most of relief options and tax-efficient strategies.