Tax
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.
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4 min read
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.