Taxable and tax free income

It is often difficult to know if a source of income is taxable or not. To help you decide we have listed the most common types of tax-free income here. Everything else is likely to be taxable.

However please note that in the world of tax nothing is entirely straightforward and so in some rare circumstances even generally tax free sources can be taxable!

Generally tax-free income

Commonly taxable income

Generally tax-free income

Benefits

Benefits in respect of children

Carer's Allowance – child dependency addition

Child Benefit

Childcare Vouchers (up to £55 per week)

Child dependency additions paid with State Retirement Pension or other social security pensions

Child's special allowance

Child Tax Credit

Child Trust Fund income or any gains (profits) until child is 18

Education Maintenance Allowance (there are separate allowances for England, Scotland, Wales and NI)

Fares to school

Guardian's Allowance

Health in Pregnancy Grant

Higher Education Student Support Grant ((there are separate allowances for England, Scotland, Wales and NI)

Maternity Allowance

School Uniform and Clothing Grants

Sure Start Maternity grant

Industrial Injury benefits

Constant attendance allowance

Industrial disablement benefit

Pneumoconiosis, byssinosis and miscellaneous disease benefits

Workmen's compensation supplement

War Disablement Benefits

Constant attendance allowance

Disablement pension

Severe disablement allowance

Other benefits

Age related payments (paid at the discretion of the government from time to time)

Attendance allowance

Bereavement payment

Budgeting loans (Social Fund payment)

Christmas bonus

Cold weather payments

Community care grants (Social Fund payment)

Council tax benefit

Crisis loans (Social Fund payment)

Disability living allowance

Employment and Support Allowance - income related

Eye tests

Funeral expenses payments (Social Fund payment)

Home Energy Efficiency Scheme (Wales)

Hospital patients travelling expenses under the Hospital Travel Scheme

Housing benefit

Housing grants

Incapacity benefit (initial 28 week period and benefit paid to those who were receiving the former invalidity benefit at 12.04.95 for the same incapacity)

Income support (taxable if paid whilst claimant on strike)

Job finders grant

Low cost bus passes

Pension credit

Redundancy payment

Television licence payment for over 75s

Vaccine damage (lump sum)

Warm Deal (Scotland)

Warm Front grant (England)

Warm Homes (N Ireland)

War widow's or dependant's pension

Winter fuel payment

Working tax credit

Other non-savings income

Adoption allowances

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 of out of court settlement

Compensation for loss of employment – the first £30,000. This includes redundancy payments both statutory and in some cases pay in lieu of notice. (Any payment over the £30,000 limit is taxable)

Compensation and interest for mis-sold personal pensions taken out between 29 April 1988 and 30 June 1994 inclusive

Educational grants or scholarships

Employer sponsored courses - up to £15,000

Foreign pensions and lump sums paid under overseas pension schemes in certain circumstances - 10% of the pension or lump sum

Foreign social security benefits – a large number are exempt

Foster care receipts below specified limits

Friendly Societies – any gains on qualifying insurance policies

Gallantry awards – annuities and additional pensions paid to holders of the Victoria Cross, George Cross and most other gallantry medals are free from tax

German & 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 (credit) insurance and long-term care insurance

Jurors' financial loss allowance, when the juror is an employee

Life Assurance policies - certain bonuses and profits

Local authority home improvement grants

Long Service awards where the gift does not exceed £50 for each year of service and which is a tangible gift e.g. a clock or shares in a company (for service of 20 years or more). A cash award is usually taxable unless it is a one off payment which is not in the contract of employment

Lottery, football pools and other betting winnings e.g. from horseracing

Lump sum pension payments (maximum 25% of the capital value up to the trivial commutation limit - £17,500 for 2009/10)

Luncheon vouchers of up to 15p per working day

Maintenance payments following divorce or separation

Miners' free coal or cash in lieu of coal is tax-free under an HM Revenue and Customs (HMRC) concession

Pensions including voluntary pensions which are not connected to a past job and to which the taxpayer contributes annually are tax-free. 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

Purchased annuities - capital element of amount received

Rent a Room Scheme – the first £4,250 of income

Repayment supplement in connection with overpaid tax – interest

Sickness and unemployment insurance policies -benefits paid

Strike pay and unemployment pay from trade unions

Thalidomide Trust payments to victims of thalidomide

Wounds & disability pensions

Some savings & investments income sources

For certain individuals who are not domiciled in the UK , as long as income from overseas is not brought into the UK, it may be treated as tax free here

Government Savings Certificates income

Individual Savings Accounts (ISA) income

Insurance policies or investment bonds -withdrawal tax free up to 5% of the amount originally invested

National Savings (NS&I) Certificates income

Save As You Earn schemes - interest and terminal bonuses

Shares or share options issued under HMRC approved employer schemes

Income from certain UK Government stocks (gilts) where the person receiving the money does not normally live in the UK

Tax Reserve Certificates interest

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Commonly taxable income

Earned income

Main sources

Benefits in kind e.g. company cars (over £8,500 earnings (including benefits) per year). In certain circumstances benefits are taxable for those earning less than £8,500.

Bonus or commission, including tips

Pensions from occupational pensions

Private pension income or pensions from personal pension plans or retirement annuity policies

Profits from self-employment

Wages and salaries (including holiday pay)

Other sources of earned income

Backdated pay awards

Expenses not totally and necessarily incurred to do the job made by the claimant?s employer including:

• Travelling expenses between the claimant's home and place of employment
• Expenses incurred for the care of a member of the claimant's family, such as child minding costs

Non-cash vouchers that are liable for Class 1 NI contributions

Payment in lieu of remuneration, such as a payment made by a liquidator when a company has been wound up and employees are owed earnings

Permitted earnings

Protective awards which may be ordered by an Industrial Tribunal if an employer has not given a trade union the statutory notice of redundancies, or a payment which may be made to an ex-employee from the Redundancy Funds if an employer goes into liquidation

Redundancy/leaving payments over £30,000

Retainers - a retainer is a payment made for a period when no actual work is carried out, such as payment made to employees of the school meals service during school holidays

State benefits

Bereavement allowance

Carer's allowance

Employment & support allowance (contributory and youth ESA)

Incapacity benefit (except for first 28 weeks and those who were receiving the former invalidity benefit at 12.04.95 for the same incapacity)

Income support (when paid to someone involved in a trade dispute who is claiming it for their partner)

Industrial death benefit pensions

Jobseeker's allowance – both income and contribution based up to a taxable maximum

Invalidity allowance when paid with state retirement pension

State retirement pension and most other state pensions

Statutory adoption pay

Statutory maternity pay

Statutory paternity pay

Statutory sick pay

Widowed mother's allowance

Widowed parent's allowance

Note that additions for dependant children with any of the above benefits are not taxable but an addition for a spouse or civil partner is taxable.

Savings & investment income

Bank, building society or local authority interest

Dividends from shares

National Savings & Investments – interest on most products

Property letting - most income (including rent a room where income is over £4,250 per year and second homes)

Purchased annuities - income element

Taxable gains on life assurance policies

Trust /settlement income

UK companies - interest

UK Government stocks (gilts) interest

UK units trusts (both interest and dividends)

Other non-savings income

Furnished holiday lettings (income from qualifying lets treated as income from self employment)

Motor mileage allowance profits paid to volunteer drivers

Pre owned assets

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