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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.

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.

Taxable Income

The following list includes income that is normally taxable.

Earned income

Wages and salaries, including holiday pay, bonuses and tips

Profits from self-employment

Pensions from occupational pensions, private pensions, personal pension plans or retirement annuity policies

Foreign pensions - 100% (90% up to 2016/17) and lump sums paid under overseas pension schemes in certain circumstances

One off payments from pension funds

Benefits in kind, which might also be called ‘perks’ of your job. This includes things like company cars and private medical insurance. The tax treatment of benefits in kind sometimes depends on whether you earn £8,500 a year or more.

Redundancy/leaving payments over £30,000

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

The State Pension IS taxable as are Job seekers allowance and Carers allowance.

For a list of state benefits and their tax treatment. Please refer to the state benefits checklist Link to LITRG website http://www.litrg.org.uk/low-income-workers/state-benefits in the ‘tax credits and benefits’ section of the Low Income Tax Reform Group (LITRG) website.

Savings and investment income

Bank or building society interest - Also read 'what tax allowances apply to me?'

Dividends from shares or from collective investments such as investment trusts - Also read 'what tax allowances apply to me?'

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 – the interest is taxable, but tax may not be deducted at source.

Interest from savings deposits with credit unions

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

Other income

Property letting – most income from renting out a property, including from second properties. You can claim certain expenses against the rents. If you rent out a room in your home, you should read our separate page on ‘rent a room’ relief. Link to 5a

Trust or settlement income

Income paid to the estate of a deceased person

Jurors' financial loss allowance, when the juror is self-employed

Motor mileage allowance profits paid to volunteer drivers.

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.

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 and pension credits are not taxable income and neither is Universal Credit.

For a list of state benefits and their tax treatment. Please refer to the state benefits checklist Link to LITRG website http://www.litrg.org.uk/low-income-workers/state-benefits in the ‘tax credits and benefits’ section of the Low Income Tax Reform Group (LITRG) website.

Non-savings income

Foreign social security benefits – a large number are exempt

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

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

Life Assurance policies – certain bonuses and profits

Local authority home improvement grants

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 part of 'trivial commutation' lump sums above the 25% limit are 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

Purchased annuities – capital element of amount received

Renting out a room in your own home – you should read our separate page on ‘rent a room’ relief link to 5a as part of the income may not be taxable

Repayment supplement (interest) in connection with overpaid tax

Wounds and disability pensions

Some savings and investments income sources

National Savings and Investments (‘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

Posted in: How do I work out my tax?