British Tax: Guide to UK Taxes for 2024/25 and Beyond

Key Takeaways

The UK tax system funds public services through a combination of income tax, capital gains tax and national insurance contributions, all collected primarily by HM Revenue & Customs (HMRC). Income tax is the largest source of UK government revenue, while national insurance contributions are the second largest source of UK revenue. Together, these taxes power everything from the NHS to state pensions.

• The tax year in the UK runs from 6 April to the following 5 April. For 2024/25, the key income tax bands are 20% (basic rate), 40% (higher rate) and 45% (additional rate), with a standard tax free personal allowance of £12,570 that tapers away once income exceeds £100,000.

• UK residents are broadly taxed on worldwide income and capital gains, while non-residents pay tax only on UK-source income. Double taxation treaties between the UK and other countries help prevent the same income being taxed twice.

• UK taxes are a mix of direct taxes (income tax, corporation tax, capital gains tax, council tax, inheritance tax) and indirect taxes (value added tax, excise duties, insurance premium tax, plastic packaging tax and others). The British tax system includes direct and indirect taxes working alongside each other.

• Recent reforms from 6 April 2025 move the united kingdom tax system firmly to a residence-based model, replacing older domicile and remittance basis rules that had been in place for decades.

Introduction to UK Tax

The British tax system covers income, consumption, property, and capital gains through a layered framework of legislation, allowances and rates. In the united kingdom, taxes and national insurance contributions raise the tax revenue needed by both central and local government to deliver public services, from healthcare and defence to roads and schools.

HM Revenue & Customs (HMRC) administers most UK taxes, while local authorities manage council tax and business rates. The uk government relies on this division to ensure efficient collection across different types of taxation.

When people talk about uk tax, they are referring to a broad collection of charges:

• Income tax on earnings, pensions and investment income

• Corporation tax on company profits

• Capital gains tax on profits from selling assets

• Value added tax (VAT) on goods and services

• Stamp duty land tax and devolved equivalents on property purchases

• Environmental levies such as the plastic packaging tax

• Excise duties on alcohol, tobacco and fuel

• Council tax and property taxes on domestic and commercial premises

This article focuses on the 2024/25 tax year where relevant and flags the major changes taking effect from 6 April 2025, particularly the shift away from domicile-based rules towards a residence-based regime for foreign income and capital gains.

Who Pays Tax in the UK?

Liability to uk tax depends on residence, the source of income and, until 5 April 2025, domicile status. These factors determine whether someone must pay tax on all their earnings or only on income arising within the UK.

• UK residents are generally taxed on worldwide income and capital gains. This means that employment income, rental income, pension income, savings income and investment income from anywhere in the world may fall within the uk tax system.

• Non-residents pay tax only on UK-source income, such as uk source income from employment carried out in the UK, rental income from UK property, and gains from UK residential property disposals. Non-residents are liable for Non-Resident Capital Gains Tax on disposals of UK property.

• Companies incorporated in the UK or centrally managed and controlled from the UK are usually subject to corporation tax on worldwide profits, including trading income, investment income and chargeable gains.

• Property owners face UK taxes such as council tax on homes and capital gains tax on disposals. Some land transactions attract land transaction tax or stamp duty land tax depending on which UK nation the property is in.

• Special rules apply for individuals moving to or leaving the UK. The Statutory Residence Test determines uk tax residence for a given tax year, and from 6 April 2025 the transition to a new residence-based regime changes how foreign income is taxed for formerly non-domiciled individuals.

Direct UK Taxes on Individuals

Direct taxes are paid straight to government based on income, profits or wealth. Unlike indirect taxes, where a business collects and remits the charge, taxpayers are personally responsible for filing and paying direct taxes via PAYE or self assessment tax return.

The main personal direct taxes in the UK are:

• Income tax

• Capital gains tax

• Dividend tax (charged via income tax rates on dividend income)

• Inheritance tax

• Certain property-related taxes such as stamp duty reserve tax

These taxes apply to employment income, pensions, savings, investments, rental property and estates on death, forming the core of personal tax planning. Rates and thresholds change regularly via Finance Acts, so it is important to reference concrete figures for the relevant tax year.

Below, each major personal tax is explored in detail.

Income Tax and the Tax-Free Personal Allowance

Income tax applies to earnings from employment, self-employment, pensions and most other taxable income. It is the largest source of UK government revenue, generating more than any other single tax. Employers must operate PAYE to deduct income tax and National Insurance from employee wages, meaning most employees never need to handle their own annual tax payments directly.

For 2024/25, the standard personal allowance is £12,570. The personal allowance is £12,570 until 2030/31, meaning this threshold will remain frozen for several years despite inflation, gradually pulling more people into higher income tax bands through "fiscal drag."

Income over £100,000 reduces personal allowance by £1 for every £2 earned above that level. This means the allowance disappears entirely at £125,140, creating an effective marginal tax rate of around 60% in that income band - a detail that catches many higher earners by surprise.

The 2024/25 income tax bands for England, Wales and Northern Ireland are:

The basic income tax rate is 20% for income up to £37,700 above the personal allowance. The higher rate of 40% applies to income from £37,701 to £125,140 of taxable income, while the additional rate of 45% applies to income over £125,141.

Scotland has a distinct and more progressive income tax system with additional bands, including a starter rate and an intermediate rate. Scottish taxpayers have different income tax rates and bands for earned and pension income, though savings and dividend income still follow UK-wide income tax rates.

Additional allowances can reduce taxable income for eligible individuals, including Blind Person's Allowance, Marriage Allowance and trading or property allowances of up to £1,000 each. These tax free allowances help ensure that people with modest additional income do not face unnecessary complexity.

For income tax purposes, individuals with untaxed income - such as rental income, foreign income or significant savings income - typically need to submit a self assessment tax return. The tax code assigned by HMRC determines how much tax is collected through PAYE each pay period.

National Insurance Contributions (NICs)

National insurance contributions are compulsory social security contributions that fund state pensions, statutory sick pay and certain other benefits. They operate alongside income tax as a major source of uk tax revenue. National insurance contributions account for about 20% of tax revenue collected by HMRC, making them the second largest revenue stream after income tax.

The scale of NICs is significant. In 2010-2011, £96.5 billion was raised from NICs, illustrating how central these contributions are to uk taxation.

Different NIC classes apply depending on how a person earns:

• Employees pay Class 1 NICs based on their earnings between the primary threshold and upper earnings limit.

• Employers also contribute to NICs for their employees, paying employer Class 1 NICs on most employee earnings and benefits in kind.

• Self-employed individuals pay Class 2 and Class 4 NICs, calculated on their annual profits.

Despite the name, national insurance contributions now function much like a second income tax. The direct link between what someone pays and the benefits they eventually receive has weakened over time. NICs do not fund a personal "pot" - they flow into general government revenue alongside income tax and other receipts.

For employees, NICs are deducted through PAYE alongside income tax, so most workers see both deductions on their payslip without needing to take any action themselves.

Capital Gains Tax (CGT)

Capital gains tax is charged on the profit when individuals or trusts dispose of chargeable assets such as shares, second homes, buy-to-let properties or business assets. It applies to the gain itself - the difference between what you paid for an asset and what you sold it for, after deducting allowable costs.

Key exemptions and reliefs include:

• Gains inside ISAs and UK pensions are exempt.

• Disposals of a main residence may qualify for principal private residence relief and therefore fall outside CGT.

• The annual exempt amount for individuals is £3,000 in 2024/25, reduced dramatically from £12,300 just two years earlier.

Capital Gains Tax rates are 10% or 20% for individuals depending on their income tax band, though these rates were changed on 30 October 2024 in the Autumn Budget. From that date, the lower main CGT rate increased from 10% to 18%, and the higher main rate from 20% to 24%, aligning them more closely with the rates on residential property disposals. The changes were forecast to raise about £90 million in 2024/25 and £1.44 billion in 2025/26.

For residential property, higher and additional rate taxpayers now pay 24% on gains, while basic rate tax payers pay 18%. The market value of the property at certain dates may be relevant for calculating gains on assets held for long periods.

Companies pay corporation tax on chargeable gains rather than personal CGT. Business Asset Disposal Relief (BADR) can reduce rates on qualifying business disposals, though the relief rate is increasing from 10% to 14% from 6 April 2025, and to 18% from April 2026.

Dividend, Savings and Investment Taxes

Dividend tax applies to income from UK and foreign shares once the dividend allowance and personal allowance are used. For 2024/25, the dividend allowance is £500. Dividend income above that is taxed at:

• 8.75% for basic rate taxpayers

• 33.75% for higher rate taxpayers

• 39.35% for additional rate taxpayers

Interest on savings accounts and bonds counts as savings income and is taxed as income, but benefits from the personal savings allowance. Basic rate taxpayers can earn up to £1,000 in savings interest tax-free, while higher rate taxpayers get a £500 allowance. Additional rate taxpayers have no personal savings allowance. Lower earners may also benefit from the starting rate for savings.

Investments held in ISAs grow free from uk income tax and capital gains tax, making ISAs one of the most straightforward tax-efficient wrappers available. Investments held outside ISAs in general investment accounts are fully within the uk tax regime.

Investment income and capital gains can interact in complex ways. Selling shares at a profit triggers capital gains tax, while dividends received on those same shares are taxed as income. Careful record-keeping and planning across tax years is essential to avoid surprises.

Inheritance Tax (IHT) and Estate Planning

Inheritance tax is charged at 40% above the nil rate band when someone dies, and can also apply to certain lifetime transfers. The nil rate band is currently £325,000, meaning estates valued below this level pay no inheritance tax.

Married couples can double their nil rate band to £650,000, because any unused portion of the nil rate band from the first spouse to die can be transferred to the surviving spouse's estate. The residence nil-rate band can increase the threshold further when a home is passed to direct descendants, though this tapers for estates valued above £2 million.

Key reliefs and exemptions include:

• Gifts made over seven years before death are exempt from tax.

• Gifts to spouses or civil partners (if both UK-domiciled prior to the reforms) are generally exempt.

• Gifts to UK charities are exempt, and charitable donations can reduce the inheritance tax rate to 36% if at least 10% of the net estate is left to charity.

From 6 April 2025, inheritance tax is moving to a residence-based system. UK-situated assets remain within IHT, and non-UK assets become taxable after long-term UK residence - defined as being resident for 10 of the previous 20 tax years. This replaces the old domicile-based rules.

Complex rules apply to trusts and formerly domiciled residents. The interaction of income and capital gains within trust structures, combined with new anti-avoidance provisions, means professional advice is often needed for cross-border estates and high-value assets.

UK Business Taxes and Corporation Tax

UK businesses face a range of taxes that vary by legal structure. Sole traders pay income tax and NICs on their profits. Companies pay corporation tax. Partnerships and LLPs are generally transparent for tax purposes, with each partner taxed individually.

Corporation tax is levied on company profits in the UK, including trading income, investment income and chargeable gains. The main rate of corporation tax is 25% for profits over £50,000, while businesses with profits under £50,000 pay a small profit rate of 19%. A marginal relief applies for profits between £50,000 and £250,000.

Other business tax obligations include:

UK businesses also interact with land transaction taxes on commercial property acquisitions and potentially the plastic packaging tax if they manufacture or import packaging components.

Key business tax reliefs include capital allowances on plant and machinery, R&D tax reliefs for qualifying innovation expenditure, and group loss relief for corporate groups. These reliefs can significantly reduce a company's tax liability.

Indirect Taxes: VAT, Duties and Environmental Levies

Indirect taxes are added tax charges on spending rather than on income. They are collected by businesses and passed on to HMRC, directly influencing prices and consumer behaviour. Unlike direct taxes, consumers bear the cost but rarely see the tax itemised on their receipt.

Value Added Tax (VAT) is charged at 20% on most goods and services, making it one of the largest contributors to government revenue. VAT replaced the older purchase tax system. The history of replacing purchase tax with VAT dates back to 1973 when the UK joined the European Economic Community. VAT operates with a standard rate of 20%, reduced rates of 5% on items like children's car seats and home energy, and zero rates for essentials such as most food and children's clothing.

VAT is by far the most significant indirect tax, though it is far from the only one.

Key excise duties apply:

• Excise duties apply to alcohol, tobacco, and fuel, often adjusted in annual Budgets for fiscal and public health reasons. These excise taxes are long-established features of the UK's revenue landscape.

• Insurance Premium Tax is charged at 12% or 20% depending on the type of insurance.

• Customs duty is charged on goods over £135 when imported into the UK. Post-Brexit customs rules add additional paperwork and compliance obligations for businesses trading internationally.

• A sales tax equivalent does not exist in the UK in the way it does in the United States - VAT serves that function instead.

Newer environmental levies aim to discourage harmful products. The plastic packaging tax, introduced in April 2022, targets packaging with insufficient recycled content. Other environmental charges include the Climate Change Levy and Landfill Tax.

Plastic Packaging Tax

Plastic packaging tax is a UK-wide charge on plastic packaging components that contain less than 30% recycled plastic by weight and are manufactured in or imported into the UK. Plastic Packaging Tax applies to packaging with less than 30% recycled plastic.

Since April 2022, the tax applies only when a business manufactures or imports 10 tonnes or more of such plastic packaging in a 12-month period. Below-threshold businesses are exempt from registration but should still monitor their volumes.

Packaging with at least 30% recycled content, or packaging that is not predominantly plastic by weight, falls outside the charge. However, records must still be kept to demonstrate compliance.

The policy objective is environmental: shifting demand towards recycled plastics, increasing UK recycling infrastructure and reducing single-use plastic waste and associated carbon emissions.

The tax is reported and paid quarterly to HMRC. It can affect pricing and supply chains for manufacturers, retailers and brand owners, particularly those sourcing packaging from overseas.

UK Taxes Administered by HMRC vs Local Authorities

Most UK taxes are administered centrally by HMRC, but some important property-related and local service taxes are handled by devolved governments and local councils.

HMRC administers:

• Income tax, corporation tax and capital gains tax

• VAT, excise duties and customs duties

• National insurance contributions

• Environmental taxes such as the plastic packaging tax

• Stamp duty land tax (in England and northern ireland)

Local authorities collect:

• Council tax on domestic properties

• Business rates on non-domestic properties

Revenue from council tax and business rates funds local services such as education, social care and waste management. In Scotland, Wales and northern ireland, devolved taxes may replace HMRC-administered equivalents. For instance, Scotland uses land and buildings transaction tax (LBTT) and Wales uses land transaction tax (LTT) instead of stamp duty land tax on property purchases.

Local tax rates and property valuations can differ significantly between regions, so taxpayers should always check local council and devolved government guidance.

Council Tax and Land Transaction Taxes

Council tax is an annual tax on domestic properties, charged to households in England, Scotland and Wales. It is based on valuation bands (set on 1991 property values in England and Scotland, and 2003 values in Wales), with local authorities setting their own rates annually.

Buyers of land and property in England and northern ireland pay stamp duty land tax (SDLT). Scotland has land and buildings transaction tax and Wales has land transaction tax, each with their own bands and reliefs. These property taxes can differ significantly:

• Residential vs non-residential property attract different rate schedules

• Additional properties (second homes, buy-to-let) often face higher rates or surcharges

• First-time buyer reliefs may apply below certain price thresholds

The timing of property transactions within a tax year can affect how much tax is paid, especially where temporary reliefs or threshold changes are in force. Property income from lettings is also taxable under income tax, and landlords must consider both annual tax on rental profits and potential capital gains tax on eventual disposal.

Taxation of Foreign Income, Double Taxation and Residence Changes

Foreign income and gains are a major issue for internationally mobile individuals and businesses. UK rules distinguish sharply between residents and non-residents, and the transition to a new residence-based regime from 6 April 2025 changes the landscape significantly.

Under the pre-6 April 2025 rules, UK residents who were non-domiciled could use the remittance basis to limit tax on non uk income to only amounts actually brought into the UK. Non-doms pay tax on UK income only if remitted under that system. A £30,000 annual charge applies for long-term non-doms who have been UK resident for at least 7 of the previous 9 tax years and wish to continue using the remittance basis.

From 6 April 2025, the UK moves to a clearer residence-based system. Long-term residents are taxed on worldwide income and gains, with transitional reliefs for those affected by the change. The new Foreign Income and Gains (FIG) regime allows qualifying new UK residents - those who have been non-UK resident for at least 10 consecutive years - to claim relief on foreign income and gains for their first 4 tax years of UK residence.

UK tax treaties help avoid double taxation for non-residents and residents alike. Double taxation agreements between the UK and other countries allocate taxing rights and typically provide relief through foreign tax credits or exemption methods. Double tax treaties are particularly important for individuals with income arising in multiple countries.

Individuals moving to or leaving the UK should consider split-year treatment, reporting foreign income via Self Assessment, and claiming reliefs correctly. A self assessment tax return is the mechanism for declaring overseas rental income, foreign pensions, and other non uk income.

Foreign Income and Double Taxation

Foreign income includes any income arising outside the UK: overseas employment income, rental income from properties abroad, dividends from foreign companies, interest on overseas bank accounts and foreign pensions. For UK residents, all of this may be taxable in the UK.

The role of double taxation agreements is to allocate taxing rights between the UK and treaty partner countries. These agreements, sometimes called double taxation agreement documents, often reduce withholding tax rates on dividends, interest and royalties flowing between countries.

For example, a uk tax resident receiving dividends from a foreign company may pay tax in the source country. They can usually claim a foreign tax credit against their UK tax liability, up to the amount of UK tax due on the same income. This prevents the same income being taxed twice, though the mechanics require careful calculation.

HMRC guidance provides specific rules on how to declare foreign income, when to use the foreign pages of the Self Assessment return, and how to keep evidence of foreign tax paid. The deadline for filing Self Assessment tax returns is 31 January following the end of the tax year for online returns.

Individuals with complex cross-border affairs - such as dual residents or those with overseas trusts - should consider specialist advice. The interaction of domestic law, double taxation treaties and foreign tax systems can create unexpected outcomes.

Residence, Domicile and the Move to a Residence-Based Regime

Before 6 April 2025, uk tax law determined liability based on both residence (assessed under the Statutory Residence Test) and domicile. A person's domicile - broadly, their permanent home as a matter of general law - could be different from their residence, creating opportunities for tax planning.

Non-UK domiciled individuals who were UK resident could access the remittance basis, keeping foreign income and gains outside UK taxation unless remitted. The concept of "Peel's income tax" and "Pitt's income tax" in the late 18th and early 19th centuries established the foundations that opposed income tax initially but eventually led to permanent taxation. The Inland Revenue (now HMRC) historically administered these rules. Over time, the system evolved, but domicile remained central to how non uk tax resident individuals and long-term expatriates interacted with the UK tax system.

From 2017, deemed domicile rules treated long-term residents (those resident for 15 of the last 20 years) as UK-domiciled for tax purposes, triggering worldwide income and IHT exposure. This was a significant tightening, but the remittance basis still applied to shorter-term non-doms.

From 6 April 2025, domicile is largely removed from the core income tax and CGT rules. The new regime:

• Replaces remittance basis with the FIG regime for qualifying new arrivals

• Introduces a Temporary Repatriation Facility allowing previously unremitted income to be brought to the UK at reduced rates (12% in 2025-27, 15% in 2027-28)

• Moves IHT to a Long-Term Resident test (10 of previous 20 years)

Domicile still matters in some contexts, including certain legacy IHT rules. Individuals should maintain clear evidence of their long-term intentions and connections. April 2025 represents the most significant dividing line in the evolution of uk taxation for internationally mobile people in decades.

Tax Refunds, Reliefs and Practical Compliance

UK taxpayers can often claim refunds if they have overpaid tax through PAYE, incorrect coding notices or provisional payments on account. Common reasons for overpayment include working for only part of the year, receiving an incorrect tax code, or making pension contributions that were not reflected in PAYE deductions.

Common income tax reliefs include:

• Pension contributions (which receive tax relief at the individual's marginal rate)

• Gift Aid donations to charity

• Certain employment expenses, such as professional subscriptions or uniforms

• Reliefs for trading losses or property losses carried forward or back

The UK tax system requires strict compliance with deadlines set by HM Revenue & Customs. Self Assessment tax returns are due by 31 October (paper) or 31 January (online) following the end of the tax year. Tax paid under Self Assessment is also normally due by 31 January, with payments on account potentially required on 31 January and 31 July for those with significant untaxed income. Late filing and late payment attract interest and penalties.

Refunds are typically processed by HMRC within several weeks once a return or claim is submitted, though complex cases and identity checks can extend timescales.

Accurate record-keeping of income, expenses, foreign income, capital gains and land transactions is the single most effective way to support claims and avoid HMRC enquiries.

FAQs About British Tax

When does the UK tax year run and what are the main filing deadlines?

The UK tax year runs from 6 April to 5 April the following year. For example, the 2024/25 tax year runs from 6 April 2024 to 5 April 2025.

Paper Self Assessment tax returns are generally due by 31 October following the end of the tax year, and online returns by 31 January. Tax owed under Self Assessment is normally due by 31 January, with payments on account potentially due on 31 January and 31 July for those with significant untaxed income.

Do I pay UK tax on my foreign income if I live in the UK?

Most UK residents are taxed on their worldwide income and capital gains, including foreign income such as overseas rent, dividends and pensions. If you are a uk tax resident, you will generally need to declare all foreign income on your tax return.

The treatment changed from 6 April 2025 for former non-domiciled individuals, with fewer options to keep foreign income outside the UK tax net. A non uk tax resident is generally taxed only on UK-source income, but should still check whether limited UK filing obligations exist.

Double taxation agreements may allow credit for foreign tax already paid, which is usually claimed through the foreign pages of the Self Assessment return.

How does capital gains tax work when I sell a UK property?

Individuals selling UK residential property that is not their main home may pay capital gains tax on the profit after deducting allowable costs and the annual exempt amount (£3,000 for 2024/25). The gain is added to your taxable income to determine whether basic rate tax or higher rate CGT rates apply.

Different rates apply depending on your income tax band. Residential property gains attract higher CGT rates than most other assets. Non-residents disposing of UK property must also consider UK CGT and may need to report the disposal within specific time limits via HMRC's property disposal return.

Reliefs such as principal private residence relief and lettings relief may reduce or eliminate the gain for qualifying homeowners.

What is council tax and can I reduce my bill?

Council tax is a local tax on domestic properties in England, Scotland and Wales, charged by local authorities based on valuation bands and local rates. It funds local services including education, social care and waste management.

Common reductions and exemptions include single person discounts (25% off), student exemptions, disability reductions and council tax support schemes for low-income households. Liability usually falls on the occupier, but some empty or second homes may attract higher charges or premiums in certain council areas.

Check your banding and local authority guidance if you think you are overpaying or eligible for a discount.

How can I legally reduce my UK tax bill?

Legitimate strategies to reduce your personal tax and overall tax liability include:

• Maximising use of the tax free personal allowance, ISA allowances and pension contributions

• Using the dividend allowance and personal savings allowance where available

• Structuring ownership of assets between spouses or civil partners to use both parties' allowances and lower rate bands

• Timing disposals of assets across tax years to maximise annual exempt amounts

Using genuine reliefs and allowances is legitimate tax planning. Artificial avoidance schemes, however, can be challenged by HMRC and lead to penalties. If your affairs involve foreign income, trusts, company structures or significant property portfolios, seek personalised professional advice.