What income is taxable?
You do not have to pay tax on all of your income. In tax terms, some income is called ‘taxable’ – you have to pay tax on it, and some is ‘non taxable’, ‘not taxable’, ‘exempt’ or ‘tax free’ – you do not have to pay tax on it. We explain the difference.
If you have income that is not taxable, you do not normally need to tell HM Revenue & Customs (HMRC) about it.
It is not always easy to know if a certain type of income is taxable or not. We list the most common types of taxable income and tax free income to help you.
As the tax rules are complex, it has not been possible to include all types of income on this page, but there are links to more information.
What income is taxable?
The following list includes income that is normally taxable.
Sometimes you receive taxable income after tax has been deducted at source (net).
Sometimes you receive taxable income without tax having been deducted (gross).
If income is taxable, it does not matter whether you receive it net or gross, you have to include the gross amount (the figure before any tax was taken off) in your calculation of your taxable income. Just because you receive some income without tax having been taken off, it does not mean that the income is exempt or tax free. You need to check the list.
- Wages and salaries, including holiday pay, bonuses and tips
- Profits from self-employment (though if your total self-employment income is less than £1,000, you may not have to pay any tax, because of a trading allowance)
- Pensions from occupational pensions, private pensions, personal pension plans or retirement annuity policies (though part might be paid as a tax-free sum – usually up to 25% of the value of the policy)
- Benefits in kind, which might also be called ‘perks’ of your job.
Other sources of earned income
- Expenses not totally and necessarily incurred to do or when doing your job but paid for by your employer
- Redundancy/leaving payments over £30,000
There is a more detailed list of taxable earned income in the 'employed section' of this website.
The UK Government supports 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 checklist in the ‘tax credits and benefits section' of this website to see whether any benefits you claim are taxable or not.
Savings and investment income
- Bank or building society interest – the interest is taxable, but tax is not normally deducted at source.
- Dividends from shares or from collective investments such as investment trusts
- National Savings and Investments (NS&I) products can cause confusion because some are taxable and some are tax free. Common taxable NS&I products are: Income Bonds, the Investment Account, Guaranteed Income Bonds and Guaranteed Growth Bonds (including the 65+ Guaranteed Growth Bond) – the interest is taxable, but tax may not be deducted at source
- Interest from Credit Unions 2015 FINAL.pdf
- Property letting – most income from renting out a property, including from second properties, (though if your total property income is less than £1,000, you may not have to pay any tax, because of a property allowance). You can claim certain expenses against the rents. If you rent out a room in your home, you should read our separate page on the ‘rent a room’ scheme
- Purchased annuities – income element
- Taxable gains on life assurance policies or investment bonds
- UK companies – interest
- UK Government stocks, or gilts, interest, for example, Treasury Stock and War Loan Stock
- UK unit trusts or Open-Ended Investment Companies, both interest and dividends.
- Trust or settlement income
- Income paid to the estate of a deceased person
- Jurors' financial loss allowance (payments for loss of profits when on jury service), when the juror is self-employed
- Payments to volunteers that do more than reimburse out of pocket expenses, for example if you are a volunteer driver and are paid more than HMRC's approved mileage rates – our tax guide for students website explains more
- Pre owned assets – a tax charge which can arise on something you have given away but still retain some interest in, or benefit from.
What income is tax free?
The following list includes income that is normally tax free.
Income that is tax free is always paid to you without tax taken off it. Just because you receive some income without tax having been taken off, it does not mean that the income it exempt or tax-free. You need to check the list.
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 checklist in the ‘tax credits and benefits’ section of this website to see whether any benefits you claim are taxable or not.
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 or out of court settlement
- Compensation for loss of employment, subject to certain rules – see 'tax and redundancy'
- Educational grants or scholarships – 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 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 horseracing
- 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 is less than £1,000 – there is more information on the ‘property allowance’ in the ‘other tax issues’ section
- Purchased annuities – capital element of amount received
- Renting out a room in your own home – you should read our separate 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
- Thalidomide Trust payments to victims of thalidomide
- Trading income if total income is less than £1,000 – there is more information on the ‘trading allowance’ in the ‘self-employment’ section
- Wounds and disability pensions
- Amounts paid to volunteers to reimburse out of pocket expenses, for example a bus fare to the place of volunteering – see out tax guide for students website for more information.
Savings and 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 be treated as tax free 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.
Where can I find more information?
For more information on taxable and tax free income, you may find these sections of this website helpful:
- Employed – what income is taxable?
- Self-employment – how do I work out my taxable profits?
- Armed forces and tax – pensions you receive
- Pensioners – what income is taxable?
There is more information on state benefits and whether or not they are taxable in the ‘state benefits section’.
There is more information on the taxation of savings income in the ‘other tax issues section’ of this website.