Financial and Tax Insights

Budget 24: Income Tax & Tax on Savings

Chancellor Rachel Reeves delivered her Budget on Wednesday 30 October 2024. She pledged to ‘invest, invest, invest’ to drive growth and ‘restore economic stability’.

Billions in tax rises

Ms Reeves said the Budget will raise £40 billion in taxes. Employers’ National Insurance contributions (NICs) will be increased from next April while Capital Gains Tax rates will rise from the date of the Budget. Inherited pensions will fall within the Inheritance Tax net from April 2027 while reliefs will be reformed on the passing down of agricultural and business assets. The Chancellor also confirmed the introduction of VAT on private school fees and the abolishment of the tax regime for non-UK domiciled individuals.

Protecting living standards

Ms Reeves said she would protect living standards by unfreezing the thresholds on Income Tax and employee NICs from 2028 while she extended the cut in Fuel Duty for another year. The Chancellor also pledged a decade of ‘national renewal’ with increased funding for schools and the NHS.

Economic growth

The office for Budget Responsibility has reported on the prospects of economic growth. They are anaemic at best, consistent with a high tax, high spending government.

Our summary

In the next few posts, we’ll be sharing a series of insights into the Budget along with explanations about some of the tax measures announced and how they may affect you, your family or your business. In this first article, we have summarised the income tax, tax on savings and dividends, and High Income Child Benefit provisions.

As always, however, you should contact us before taking any action as a result of the contents of this summary, or if you need any further help or support.

Budget 24

Private Clients - Income Tax

Tax bands and rates

The basic rate of tax is 20%. For 2025/26 the band of income taxable at this rate is £37,700 so that the threshold at which the 40% rate applies is £50,270 for those who are entitled to the full personal allowance.

The basic rate band is frozen at £37,700 until April 2028. The NICs Upper Earnings Limit and Upper Profits Limit will remain aligned to the higher rate threshold at £50,270 for these tax years as well. The government has suggested that, from April 2028, these limits will then be uprated in line with inflation.

For 2025/26 the point at which individuals pay the additional rate of 45% is £125,140.

The additional rate for non-savings and non-dividend income will apply to taxpayers in England, Wales and Northern Ireland. The additional rate for savings and dividend income will apply to the whole of the UK.

The personal allowance

The income tax personal allowance is fixed at the current level of £12,570 until April 2028. The government has suggested that, from April 2028, it will then be uprated in line with inflation.

There is a reduction in the personal allowance for those with ‘adjusted net income’ over £100,000. The reduction is £1 for every £2 of income above £100,000. This means that there is no personal allowance where adjusted net income exceeds £125,140.

The government will uprate the married couple’s allowance and blind person’s allowance for 2025/26.

Tax on savings income

Savings income is income such as bank and building society interest.

The Savings Allowance applies to savings income and the available allowance in a tax year depends on the individual’s marginal rate of income tax. Broadly, individuals taxed at up to the basic rate of tax have an allowance of £1,000. For higher rate taxpayers the allowance is £500. No allowance is due to additional rate taxpayers.

Savings income within the allowance still counts towards an individual’s basic or higher rate band and so may affect the rate of tax paid on savings above the Savings Allowance.

Some individuals qualify for a 0% starting rate of tax on savings income up to £5,000. However, the rate is not available if taxable non-savings income (broadly earnings, pensions, trading profits and property income, less allocated allowances and reliefs) exceeds £5,000.

Tax on dividends

Currently, the first £500 of dividends is chargeable to tax at 0% (the Dividend Allowance). This £500 is retained for 2025/26.

These rules apply to the whole of the UK.

Dividends received above the allowance are taxed at the following rates for 2025/26:

8.75% for basic rate taxpayers
33.75% for higher rate taxpayers
39.35% for additional rate taxpayers.

The Corporation Tax due on directors’ overdrawn loan accounts is paid at 33.75% and remains unchanged.

Dividends within the allowance still count towards an individual’s basic or higher rate band and so may affect the rate of tax paid on dividends above the Dividend Allowance.

To determine which tax band dividends fall into, dividends are treated as the last type of income to be taxed.

High Income Child Benefit Charge (HICBC)

The High Income Child Benefit Charge (HICBC) is a tax charge that applies to higher earners who receive Child Benefit or whose partner receives it.

For 2025/26, the income threshold at which HICBC starts to be charged is £60,000. The rate at which HICBC is charged is 1% of the Child Benefit payment for every additional £200 above the threshold. This means that Child Benefit will not be withdrawn in full until individuals have adjusted net income of £80,000 or more.

The government will not proceed with the reform to base HICBC on household incomes as proposed by the previous government.

Further Budget insights

In our next Budget 24 Summary post, we will be taking a look at the changes to Capital Gains Tax and Inheritance Tax as well as to pensions and Stamp Duty and the implications these changes may have for you.

You can find all our insights in respect of the recent Budget here:

Please get in touch for advice before you take any action in respect of the Budget or contents of this article.