Starting from April 6, 2025, significant changes to benefits payment rates in the UK will take effect, providing a welcome boost to the income of millions of households. Chancellor Rachel Reeves confirmed a 1.7% increase in inflation-linked benefits during the autumn Budget last year, which will aid claimants of Universal Credit, Personal Independence Payment (PIP), Attendance Allowance, and Employment and Support Allowance (ESA), among others.
In addition to these benefits, the basic and new State Pensions will see a more substantial increase of 4.1%. This rise aligns with the annual increase in the Average Weekly Earnings index for May to July 2024. Notably, individuals on the National Minimum Wage will experience a 6.7% pay hike, raising their hourly wage to £12.21. The weekly earnings limit for Carer’s Allowance will also increase, now equivalent to 16 hours’ work a week at the National Living Wage—marking the largest increase since the introduction of the allowance.
Despite these increases, some benefits and allowances will remain stagnant. The standard Personal Allowance threshold—which determines how much income you can earn before paying taxes—will remain frozen at £12,570 starting in April 2025. For those earning between £12,571 and £50,270, a tax rate of 20% applies, while income exceeding £50,271 will be taxed at 40% and earnings above £125,140 will incur a 45% tax rate.
Moreover, beginning with the 2025/26 tax year, the higher income tax band will also remain frozen at £50,270, impacting those in the bracket of £50,271 and £125,140 who will continue to pay 40% tax on their income over the Personal Allowance threshold. Furthermore, Tax Credits will cease to exist after April 5, 2025, being entirely replaced by Universal Credit. Those eligible for this transition should have received a migration letter from the Department for Work and Pensions (DWP) detailing their necessary steps.
Chancellor Reeves mentioned, "The uplift applies to working age benefits including Universal Credit, Personal Independence Payment (PIP), Attendance Allowance, and Employment and Support Allowance (ESA) among others." This comprehensive overview indicates the government’s commitment to supporting citizens in financially precarious situations.
In tandem with these changes are increases in Child Benefit rates, which will also take effect in April 2025. These payments are designed to support families with the costs associated with raising children. According to the consumer price index, the rate of inflation as noted in September 2024 was 1.7%. As a result, payments for the first or eldest child will rise from £25.60 a week to £26.05, and payments for any additional children will increase from £16.95 to £17.25.
Beyond these immediate financial boosts, there is a pressing warning from HMRC regarding women who had children in the 1980s and 1990s. The Labour Party’s Shadow Tax Minister has raised concern that many of these mothers might be missing out on key state pension payments due to historical oversights in record-keeping by HMRC. Specifically, women who took time off work for childbirth and were eligible for Home Responsibilities Protection (HRP) may find that their pension entitlements are significantly impacted. HRP should have been given automatically to anyone who claimed child benefit and took a career break between April 6, 1978, and April 5, 2010.
Reportedly, many individuals did not receive the full benefits they were entitled to because HRP updates were not accurately reflected in National Insurance records. The eligibility for claiming HRP spans each complete tax year from 1978 to 2010, for individuals who cared for children under 16 or those who were responsible for someone ill or disabled.
Further complicating the landscape, the Money Saving Expert (MSE), led by Martin Lewis, issued a warning about prospective changes concerning side hustles. Under the current regulations, individuals can earn an additional £1,000 each year without the burden of submitting a self-assessment tax return. The proposed future regulations could elevate this threshold to £3,000, allowing those with side hustles to keep more of their earnings without additional tax paper work.
These changes are anticipated to take effect no sooner than 2029, but they signal a shift that could impact upwards of 300,000 individuals. Under the new structure, if someone earns between £1,000 and £3,000, they will not need to file for self-assessment yet will still be responsible for informing HMRC of their earnings.
In the interim, the existing rules permit individuals to earn up to £1,000 from side activities alongside their primary job without penalties, while those exceeding this amount will need to submit their income tax information to HMRC. The property allowance currently allows up to £1,000 of income from renting out a full property, or up to £7,500 under the Rent a Room scheme for renting single rooms, without necessitating tax declarations.
Overall, the adjustments outlined for April 2025 encapsulate both significant increases in financial provisions for many individuals and families, as well as essential changes aimed at improving compliance and support in the tax arena. They are reflective of evolving socio-economic conditions and the government's efforts to adapt the welfare system to better meet the needs of the populace.
