Tax-free income
You may not have to pay tax on all of your income. Some income is non-taxable, not taxable, exempt or tax free. This means you do not include that income in your total taxable income and you do not have to pay tax on it.
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Tax-free income: overview
If you have income that is not taxable (tax free), you do not normally need to tell HM Revenue & Customs (HMRC) about it. The below list sets out types of income that are normally tax free.
Income that is tax free is always paid to you without tax taken off it. However, just because you receive some income without tax having been taken off, it does not mean that the income is exempt or tax free – some taxable income is paid without tax having been taken off. You need to check.
Tax-free state benefits
The UK government provides support to people in certain times of need, by way of the state benefits system. Some benefits are taxable, but others are not. Importantly, tax credits are not taxable income and neither is universal credit.
We provide a separate list of state benefits in which we give the tax treatment of each. Please refer to our State benefits page to see whether any benefits you may claim are taxable or not.
Tax-free non-savings income
- Adoption allowances
- Apprenticeships care leavers’ bursary, for eligible apprentices who complete at least 60 days of their apprenticeship
- Compensation, damages or interest, up to the time of judgement, for personal injuries, whether received in one lump sum or over a period, and whether awarded by a court or out-of-court settlement
- Compensation for loss of employment, subject to certain rules – see our page on Redundancy
- Educational grants or scholarships: nearly all scholarships and awards are free of tax, but you should get confirmation in writing from the donor that the amount is tax free
- Employer sponsored courses
- Foreign social security benefits: a large number of these are exempt
- Foster care and shared lives care receipts below specified limits
- Friendly Societies: any gains on qualifying insurance policies
- Gallantry awards: annuities and additional pensions paid to holders of most gallantry medals
- German and Austrian annuities and pensions for victims of Nazi persecution
- HM Forces: mess and ration allowances
- Holocaust victims: compensation paid by banks on frozen accounts
- Insurance benefits paid to a person who is sick, disabled or unemployed, to meet her/his financial commitments. These include benefits paid under mortgage protection insurance, permanent health insurance, payment protection, or credit, insurance and long-term care insurance
- Jurors' financial loss allowance (payments for loss of earnings when on jury service), when the juror is an employee
- Life Assurance policies: certain bonuses and profits
- Local authority home improvement grants
- Long Service awards where the gift meets certain criteria
- Lottery, football pools and other betting winnings – for example, from horse racing
- Lump sums from UK approved pension schemes up to 25% of the capital value – note that the part of any lump sum above the 25% limit is taxable
- Maintenance payments following divorce or separation
- Disability pensions of members of the armed forces are tax free. Any pension awarded to an employee on retirement because of an injury at work is free of tax.
- Premium Bond prizes
- Property rental income if total income (before expenses) is no more than £1,000 – this is because of the property allowance
- Purchased annuities: capital element of amount received
- Renting out a room in your own home: you should read our page on the Rent-a-room scheme as part of the income may not be taxable
- Repayment supplement (interest) in connection with overpaid tax
- Sickness and unemployment insurance policies: benefits paid
- Strike pay and unemployment pay from trade unions
- Student loans are tax free.
- Thalidomide Trust payments to victims of thalidomide
- Trading income and/or miscellaneous income if total income (before expenses) is no more than £1,000: this is because of the trading allowance
- Wounds and disability pensions
- Amounts paid to volunteers to reimburse out-of-pocket expenses – for example, a bus fare to the place of volunteering.
Tax-free savings and other investment income
- For certain individuals who are not domiciled in the UK, as long as income from overseas is not brought into the UK, it may not be taxed in the UK
- NS&I: interest on Savings Certificates and Children’s Bonus Bonds
- Individual Savings Accounts (ISA) income
- Insurance policies or investment bonds: withdrawal tax free up to 5% of the amount originally invested
- Save As You Earn schemes: interest and terminal bonuses
- Income from certain UK Government stocks or gilts, where the person receiving the money is not resident in the UK.
