Tax information and allowances

This is a limit on the amount of tax free lump sums that can be taken from pension schemes. The standard LSA is £268,275.

If your LTA was protected, you’ll have a higher allowance based on your protected amount. 

A tax-free lump sum is: 

• any tax-free lump sums you have already taken (including tax-free cash)
• the tax-free part of any UFPLS (lump sum benefits)
• any deemed tax-free lump sums taken before 6 April 2024; and
• any tax-free cash that you are about to take

Where the amount exceeds this allowance, income tax may be payable on the excess.

This is a limit on the amount of lump sum death benefits and serious ill health lump sums that can be paid without tax. The standard LSDBA is £1,073,100.

If your LTA was protected, you’ll have a higher allowance based on your protected amount. 

The following will reduce the LSDBA allowance: 

• any tax-free lump sums you have already taken (including tax-free cash)
• the tax-free part of any UFPLS (lump sum benefits)
• any deemed tax-free lump sums taken before 6 April 2024; and
• any tax-free cash that you are about to take
• a Serious Ill Health Lump Sum (i.e. a tax-free sum that can be paid from your pension if you’ve a life expectancy of less than one year).

The following are all lump sum death benefits which, when paid, use up your LSDBA: 

• Defined benefits lump sum death benefit
• Uncrystallised funds lump sum death benefit
• Pension protection lump sum death benefit
• Annuity protection lump sum death benefit
• Drawdown/Flexi-Access Pension lump sum death benefit 

Where the amount exceeds this allowance, income tax may be payable on the excess.

What is a transitional tax-free amount certificate?

If you have previously taken other pension benefits prior to 6 April 2024 and were provided with a Lifetime Allowance (LTA) percentage used at that time, the HMRC transitional calculation assumes that you took a 25% tax-free cash sum from all of these benefits.

For example, if someone has used up 20% of their LTA, the LSA will be calculated as follows:

20% x £1,073,100 / 4 = £53,655. This figure would need to be deducted from the LSA, therefore the LSA would start at £214,620 (£268,275 – £53,655).

If you didn't take a tax-free cash sum or it was less than 25%, you may have more allowance remaining in place of using the HMRC transitional calculation assumptions.

If you think your allowances will be impacted by the HMRC transitional calculation assumptions, as you previously received tax-free cash sums that were less than 25%, you may be entitled to apply for a transitional tax-free amount certificate.

If you receive one of these certificates, your LSA and LSDBA will be reduced by the actual tax-free cash sums paid to you – rather than the HMRC transitional calculation assumptions.

If this applies and you think the tax-free elements from all your pension arrangements already paid to you or that you are likely to take in the future will take you close to or above the LSA of £268,275, you should consider applying for a transitional tax-free amount certificate. Such an application must be made before you receive your first lump sum benefit from a pension on or after 6 April 2024.

If you're unsure, you should consider getting tax advice or you should speak to your financial adviser. If you don’t have one, you can find an adviser at pru.co.uk/find-an-adviser

In order to issue a transitional tax-free amount certificate, we will need to gather further information from you on benefits that you have taken previously.

There’s a limit to the amount of pension savings (also known as pension inputs) which you can make in each tax year, before you face a tax charge. This is called the Annual Allowance. The current Annual Allowance is £60,000.

For money purchase arrangements, such as personal pensions and additional voluntary contributions (AVCs), the amount of Annual Allowance you have used is found by adding together the total contributions paid by you, or on your behalf over the tax year.

For defined benefit arrangements, such as final salary schemes, the amount of Annual Allowance you have used is worked out using a calculation to factor in the growth of your benefits over the tax year.

If you go above the Annual Allowance, you may be liable for a tax charge and you must let HMRC know by completing a tax return.

If you’re a higher earner you may be impacted by what is known as the Tapered Annual Allowance which will reduce your Annual Allowance. For more information you can visit: gov.uk/guidance/pension-schemes-work-out-your-tapered-annual-allowance

The Money Purchase Annual Allowance (MPAA) will apply if you have “flexibly accessed” your pension. The current MPAA is £10,000.

There are different ways you can “flexibly access” and the most common are:

• taking a cash lump sum (uncrystallised funds pension lump sum) subject to tax;
• taking income from flexi-access drawdown. Taking tax-free cash only does not count;
• if you have a capped drawdown fund and take income above the cap.

The MPAA may limit the amount of pension contributions that can be made before an Annual Allowance tax charge is made.

The MPAA will not affect you if you have taken final salary or career average benefits only, nor will it affect you if you have a non-flexible Annuity. It also does not apply to any final salary or career average benefits that you may build up in the future.

If you're a Scottish Rate tax payer, your Personal Allowance is the same as the rest of the UK. The table below shows the Scottish Income Tax rates you pay in each band if you have a standard Personal Allowance.

*Your Personal Allowance starts to reduce once your income reaches £100,000 and is lost when income exceeds £125,140.

†The Personal Allowance will be higher if you claim Blind Person’s Allowance. 

The rates and bands above only apply to earned income like salary, bonuses, and profits. Other incomes e.g. savings and dividends use the UK rates and bands.

For more details on the Scottish Rate of Income Tax, please go to: gov.uk/scottish-rate-income-tax

If you’re a Welsh taxpayer, from the 6^th April 2019, the rate of income tax you’ll pay on non-savings and non-dividend income (NSND) will be based on the rates set by the Welsh Government.

The Welsh Government has confirmed that the Welsh rates of Income Tax will be the same as those applying to the rest of the UK (except Scotland) for the 2024/2025 tax year.

Inheritance Tax (IHT) is paid if a person’s estate (their property, money and possessions) is worth more than a certain amount when they die. This Inheritance Tax threshold is called the "nil rate band" and is £325,000 (2024/2025). The threshold is per person and on the death of a spouse or civil partner any unused percentage can be transferred to the survivor to increase the available "nil rate band" on their subsequent death.

The Government introduced a ‘residence nil-rate band’ from the 2017/2018 tax year starting at £100,000, for the 2019/2020 tax year this was £150,000, from the 2020/2021 tax year this was £175,000 and will remain at £175,000 for the current tax year (2024/2025). 

The new "residence nil rate band" can be used where a residential property is left to a direct descendant on death. Where an estate includes assets in excess of £2 million, then the "residence nil rate band" is reduced by £1 for every £2 over the limit. Like the "nil rate band", any unused amount on first death of a spouse or civil partner can be transferred to the surviving spouse/ civil partner.

For more details on IHT, go to: gov.uk/inheritance-tax

When do I pay capital gains tax?

If you sell assets, such as personal possessions, shares, property or business assets, you may have to pay Capital Gains Tax. You'll need to pay tax, if you have made any gains after deducting any losses, which exceed your annual exempt amount.

To find out more about the assets which may be included, go to the HMRC website.

How do I work out my capital gains tax bill?

You'll need to work out whether you pay tax in any tax year that you've sold an asset. The tax year runs from 6 April to 5 April the following year.

Here’s the steps you'll need to take, although you should speak to HMRC or a financial adviser to make sure your sums are correct:

Step 1

Work out the gains for each asset you’ve sold in that tax year. From this figure you can deduct certain costs of buying selling or improvement (if applicable). Examples of these are below;

• fees, for example stockbrokers' fees
  
  
• Stamp Duty Reserve Tax (SDRT) when you bought the shares
  
  
• estate agents' and solicitors' fees
  
  
• costs of improvement works, for example for an extension (normal maintenance costs, such as decorating, don't count)

You may also get relief for property sales if the property was your home, a business asset or occupied by a dependant relative.

Step 2
Add all the gains together for that tax year.

Step 3
Deduct any losses you’ve made for that tax year.

If your gain is above the annual exempt amount (AEA) of £3,000 (2024/2025), you can deduct any losses you’ve carried forward from previous years (the current years AEA and losses must be used first). If this reduces your gain down to the AEA, you can carry forward any unused losses to a future tax year.

*This would apply to Individuals, Personal Representatives and Trustees for disabled people.

*For other trustees the annual exempt amount is £1,500. Although if there are multiple trusts this is split equally between them down to a minimum of £300 per trust.

Step 4

Check if your total taxable gain is under the AEA. If it is, you won't have to pay tax. If it’s more, you’ll need to pay at the capital gains tax rate:

• For the part of the gain that falls in the basic rate tax band , you'll pay tax at 10%. Although this rate is 18% for transactions involving residential property.
  
  
• For that part of the gain that is above the basic rate tax band , you'll pay tax at 20%. Although this rate is 28% for transactions involving residential property.

How do I pay any tax?

To pay any tax that’s due, you’ll need to contact HMRC and complete a tax return.

Everyone has a Personal Allowance which is £12,570. This is the amount of income you can earn before you pay tax. This will be higher if you claim Blind Person’s Allowance or smaller if your income is over £100,000.

For more details on, go to gov.uk/income-tax-rates

Marriage Allowance

Married couples and civil partners may be eligible for a transferable tax allowance - marriage allowance.

It benefits couples where one is a basic rate taxpayer and one has unused personal allowance. You cannot receive it if either of the parties receive married couples allowance, which is an older allowance only allowed where one partner was born before 6 April 1935.

The marriage allowance allows the basic rate taxpayer to reduce their income tax bill by 20% of the others unused personal allowance.

The maximum amount of unused personal allowance that can be used is capped at 10% of the standard personal allowance. This means up to £1,260 can be “transferred” saving up to £252 in tax for 2024/2025.

This allowance must be claimed from HMRC. It can be backdated to any tax year since 5 April 2015 including where one partner has died since 5 April 2015. 

Married Couples Allowance

If either you, your husband, wife or civil partner were born before 6 April 1935, the previous Married Couples Allowance still remains. 

The Married Couples Allowance for the 2024/2025 tax year is £11,080.

For more details, go to: gov.uk/marriage-allowance

Personal savings allowance


Your Personal Savings Allowance is the total amount of interest you can earn each year across all of your bank accounts (except ISAs) without paying tax. If you're a basic rate tax payer you can earn up to £1,000 in interest without paying tax on it. Higher rate tax payers can earn up to £500 in interest without paying tax on it. Additional rate tax payers don't get a personal savings allowance. 

Starting rate for savings

You could earn up to £5,000 of savings interest and not have to pay tax on it. This is your starting rate for savings interest, however the more you earn from other income your starting rate for savings is reduced. 

For more details on the personal savings allowance, go to gov.uk/government/publications/personal-savings-allowance-factsheet/personal-savings-allowance

Each tax year, there's a limit to the amount you can put into an Individual Savings Account (ISA), Junior ISA (JISA) and the Lifetime ISA . The allowances apply to Cash ISAs, an Investment ISAs or a combination of the two. The ISA limits are:

For more details, please go to gov.uk/individual-savings-accounts

There’s an annual dividend zero rate taxation for the first £1,000. The rates of tax on dividend income above the zero rate band are:

For details on tax on Dividend Income by Trustees and how this may affect Trusts, please go to gov.uk/trusts-taxes/trusts-and-income-tax.