What income is tax-free UK?

Tax-free income includes: Personal Allowance (first £12,570), ISA interest and growth, Premium Bond wins, some benefits (Child Benefit, Disability Living Allowance, Personal Independence Payment), some redundancy pay (first £30,000), and employer pension contributions. There are also specific allowances for savings, dividends, and property.

Is ISA interest tax-free UK?

Yes, completely. All income and growth within an ISA (Cash ISA or Stocks and Shares ISA) is tax-free. No Income Tax on interest, no Capital Gains Tax on growth, no dividend tax. This includes withdrawals — you can take money out tax-free anytime.

Do you pay tax on Premium Bonds UK?

No. All Premium Bond prizes are tax-free. Whether you win £25 or £1 million, no tax is due. This makes them particularly attractive for higher-rate taxpayers who would otherwise pay tax on savings interest.

Is Child Benefit taxable UK?

Child Benefit itself is tax-free. However, if you or your partner earn over £60,000, you must repay some or all of it through the High Income Child Benefit Charge. Over £80,000, you repay 100%. You can opt out of receiving it to avoid the charge.

Tax-Free Income UK — What You Don't Pay Tax On | PocketWise

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.

Tax-Free Income UK — What You Don't Pay Tax On

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