Income tax rates
The government has stated that the basic rate will remain at 20%, the higher rate at 40% and the additional rate at 45% for 2024/25.
The government reduced the point at which individuals pay the additional rate of 45% from £150,000 to £125,140 for the current tax year and this will continue for 2024/25.
Income tax allowances
The income tax personal allowance and basic rate limit are fixed at their current levels until April 2028. They are £12,570 and £37,700 respectively. For those entitled to a full personal allowance, the point at which they will pay income tax at the higher rate will continue at £50,270.
The government has also confirmed that, from 6 April 2024, the rates of taxation on dividend income will remain as follows:
the dividend ordinary rate - 8.75%
the dividend upper rate - 33.75%
the dividend additional rate - 39.35%.
As corporation tax due on directors’ overdrawn loan accounts is paid at the dividend upper rate, this will also remain at 33.75%.
The government will reduce the Dividend Allowance from £1,000 to £500 from 6 April 2024.
It is estimated that the reduction in the Dividend Allowance will affect £4.4 million individuals in 2024/25 with the average loss to those affected being around £155.
The Scottish and Welsh governments will make their announcements on the devolved elements of taxation policy in due course.
National Insurance contributions
The Chancellor announced major changes to the National Insurance contributions (NICs) system.
Employees and NICs
The government will cut the main rate of Class 1 employee NICs from 12% to 10% from 6 January 2024 so that employees can benefit as soon as possible.
According to the government, this will provide a tax cut for 27 million working people with the average worker on £35,400 receiving a cut in 2024/25 of over £450.
The self-employed and NICs
The self-employed generally have to pay two forms of NICs: Class 2 and Class 4.
Firstly, the government will abolish Class 2 self-employed NICs from 6 April 2024. This means that, from 6 April 2024:
Self-employed people with profits above £12,570 will no longer be required to pay Class 2 NICs but will continue to receive access to contributory benefits, including the State Pension.
Those with profits between £6,725 and £12,570 will continue to get access to contributory benefits, including the State Pension, through a National Insurance credit without paying NICs.
Those with profits under £6,725 and others who pay Class 2 NICs voluntarily to get access to contributory benefits including the State Pension, will continue to be able to do so.
The government will set out the next steps on Class 2 reform next year.
This will mean that a self-employed person who currently pays Class 2 NICs will save at least £192 per year.
Secondly, the government will cut the main rate of Class 4 self-employed NICs from 9% to 8% from 6 April 2024.
This will benefit around two million individuals, recognising the contribution of the self-employed to the economy and ensuring that work pays for all.
Extension of NICs relief for hiring veterans
The government is extending the employer NICs relief for businesses hiring qualifying veterans for a further year from April 2024 until April 2025. This means that employers will continue to pay no employer NICs up to annual earnings of £50,270 for the first year of a qualifying veteran’s employment in a civilian role.
National Living Wage and National Minimum Wage
The government has accepted in full the recommendations of the Low Pay Commission and announced increased rates of the National Living Wage (NLW) and National Minimum Wage (NMW) which will come into force from April 2024. In addition, from April 2024 the NLW will be extended to 21 and 22 year olds.
The apprenticeship rate applies to apprentices under 19 or 19 and over in the first year of apprenticeship. The NLW applies to those aged 21 and over.
The Department for Business and Trade estimates 2.7 million workers will directly benefit from the 2024 National Living Wage increase.
Individual Savings Accounts
The government is freezing the limits on Individual Savings Accounts (ISAs) (£20,000), Junior Individual Savings Accounts (£9,000), Lifetime Individual Savings Accounts (£4,000 excluding government bonus) and Child Trust Funds (£9,000) for 2024/25.
However, a number of changes will be made to allow multiple subscriptions to ISAs of the same type every year and to allow partial transfers of ISA funds in-year between providers from April 2024.
Pension tax limits
A number of changes were made to the tax regime for pensions for 2023/24 and these include the following, which will remain at their 2023/24 levels for 2024/25:
The Annual Allowance (AA) is £60,000.
Individuals who have ‘threshold income’ for a tax year of greater than £200,000 have their AA for that tax year restricted. It is reduced by £1 for every £2 of ‘adjusted income’ over £260,000, to a minimum AA of £10,000.
No Lifetime Allowance (LA) charge.
In addition, as previously announced the LA of £1,073,100 will be abolished from 2024/25. Changes will be made to clarify the taxation of lump sums and lump sum death benefits, and the application of protections, as well as the tax treatment for overseas pensions, transitional arrangements, and reporting requirements.