Income Tax UK: Tax Codes, Allowances, PAYE, Scottish Rates and Reliefs Tax-Free Income UK — What You Don't Pay Tax On Complete list of tax-free income in the UK. What's exempt from Income Tax and how to make the most of tax-free allowances and income sources.
By James Whitfield
·
24 March 2026
·
Last reviewed: 14 August 2026
·
4 min read For a comprehensive overview of income tax, see our Income Tax guide.
Understanding what’s tax-free helps you keep more of your money. Here’s the complete guide.
Tax-Free Allowances Personal Allowance Allowance Amount Standard £12,570/year Over £100,000 income Reduces by £1 for every £2 Over £125,140 £0
Your first £12,570 of income is tax-free (if eligible).
Savings Allowances Allowance Amount Personal Savings Allowance (basic rate) £1,000 Personal Savings Allowance (higher rate) £500 Personal Savings Allowance (additional rate) £0 Starting rate for savings Up to £5,000 (if low income)
Dividend Allowance Allowance Amount Dividend Allowance £500/year Beyond allowance Taxed at dividend rates
Capital Gains Allowance Allowance Amount Annual Exempt Amount £3,000/year
Completely Tax-Free Income ISAs (Individual Savings Accounts) What’s Tax-Free Details Interest Cash ISA interest Growth S&S ISA investment growth Dividends Within ISA Capital gains When you sell investments Withdrawals Take out any time
Premium Bonds Feature Details All prizes Tax-free No limit On prize amount Good for Higher-rate taxpayers
Certain Benefits Benefit Tax Status Child Benefit Tax-free (but HICBC may apply) Disability Living Allowance Tax-free Personal Independence Payment Tax-free Attendance Allowance Tax-free Housing Benefit Tax-free Universal Credit Tax-free Child Tax Credit Tax-free Working Tax Credit Tax-free
Pension Elements Element Details Tax-free lump sum 25% of pension pot Employer contributions Not taxed as income
Employment Tax-Free Payments Redundancy Pay Component Tax Status First £30,000 Tax-free Above £30,000 Taxed as income Statutory redundancy Usually within £30k Notice pay Usually taxed
Other Employment Benefits Tax-Free Details One mobile phone Provided by employer Reasonable relocation Up to £8,000 Cycle to work Salary sacrifice Free/subsidised meals In canteen Work-related training If for job Annual party Up to £150 per head
Property and Rent Rent a Room Scheme Allowance Details Amount £7,500/year What counts Renting a room in your home Furnished Must be furnished room If over £7,500 Can deduct expenses instead
Property Allowance Allowance Details Amount £1,000/year For Casual property income If over Deduct expenses instead
Trading and Side Income Trading Allowance Allowance Details Amount £1,000/year For Self-employment, casual trading If over Can deduct expenses instead
Selling Personal Items Capital Gains Exemptions Exemption Details Main home Private Residence Relief Cars Always CGT-free Personal belongings Under £6,000 each Annual allowance £3,000 of gains
Selling Online Rule Details Selling own items Usually not taxable If for profit May be trading income Trading allowance £1,000 covers small amounts
Gifts and Inheritance Gifts Received Type Tax Status Cash gifts No Income Tax Inheritance No Income Tax IHT Different system (estate pays)
Gifts Given Category Tax-Free Amount Annual exemption £3,000/year Small gifts £250 per person Wedding gifts £5,000 (child), £2,500 (grandchild), £1,000 (others) Regular gifts from income If affordable and habitual
Tax-Efficient Savings Strategy Priority Order Priority Use This First 1 ISA allowance (£20,000/year) 2 Pension contributions (tax relief) 3 Personal Savings Allowance (£500-£1,000) 4 Premium Bonds (tax-free wins) 5 Regular savings beyond allowances
Example: Maximising Tax-Free Income Source Amount Tax Salary up to Personal Allowance £12,570 £0 Cash ISA interest £500 £0 S&S ISA dividends £1,000 £0 Premium Bond wins £200 £0 Savings interest (PSA) £1,000 £0 Dividend allowance £500 £0 Rent a Room £7,500 £0 Total tax-free £23,270 £0
Benefits and Tax Tax-Free Benefits Benefit Details Child Benefit Tax-free (HICBC applies over £60k) Universal Credit Tax-free PIP / DLA Tax-free Attendance Allowance Tax-free Carer’s Allowance Taxable
Taxable Benefits Benefit Details State Pension Taxable Jobseeker’s Allowance (contributions-based) Taxable Employment and Support Allowance (contributions-based) Taxable Carer’s Allowance Taxable
Summary: Tax-Free Income Checklist Key Allowances Allowance 2024-25 Amount Personal Allowance £12,570 Personal Savings Allowance (basic rate) £1,000 Personal Savings Allowance (higher rate) £500 Dividend Allowance £500 Capital Gains Allowance £3,000 ISA Allowance £20,000 Trading Allowance £1,000 Property Allowance £1,000 Rent a Room £7,500
Completely Tax-Free Source Status ISA income and growth Always tax-free Premium Bond wins Always tax-free Most benefits Always tax-free Main home sale Usually tax-free Personal items under £6k Tax-free to sell Employer pension contributions Tax-free Redundancy (first £30k) Tax-free
Actions to Maximise Tax-Free Income Action Benefit Use full ISA allowance £20,000/year tax-free Contribute to pension Tax relief plus growth Consider Premium Bonds If higher-rate taxpayer Claim Marriage Allowance Extra £252 tax saving Use Rent a Room £7,500 tax-free Use trading allowance £1,000 for side income
Understanding tax-free income and allowances helps you structure your finances to keep more of what you earn.
You Might Also Find Useful