What income is taxable?

Updated on 6 October 2019

Tax basics

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. Here, 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 (that is, you receive it net).

Sometimes you receive taxable income without tax having been deducted (that is, you receive it 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.

Earned income

Main sources

  • 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 the trading allowance)
  • Pensions from occupational pensions, private pensions, personal pension plans or retirement annuity policies (though part might be paid as a tax-free lump 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

  • Reimbursed expenses which are not wholly, exclusively and necessarily incurred to do, or when doing, your job but are paid for by your employer
  • Redundancy/termination payments over £30,000

There is a more detailed list of taxable earned income in the employment section.

State benefits

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 to see whether any benefits you claim are taxable or not.

Savings and other investment income

  • Bank or building society interest – the interest is usually 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 savings deposits with credit unions
  • 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 the 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 – the income element
  • Taxable gains on life assurance policies or investment bonds
  • UK companies – interest paid
  • UK government stocks, gilts or interest, for example, Treasury Stock and War Loan Stock
  • UK unit trusts or Open-Ended Investment Companies, both interest and dividends.

Other income

  • 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 – there is more information on Tax Guide for Students website
  • Pre-owned assets – a tax charge which can arise on something you have given away but still retain some interest in, or benefit from.

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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 is exempt or tax free. You need to check the list.

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 checklist 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 What tax do I pay on redundancy payments?
  • 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 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 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 – there is more information on Tax Guide for Students.

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 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.

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Where can I find more information?

For more information on taxable and tax-free income, you may find these sections of this website helpful:

There is more information on state benefits and whether or not they are taxable in the tax credits and benefits section.

There is more information on the taxation of savings income in the other tax issues section.

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