Taxable income
Money and State benefits you pay tax on
1. Overview
For amounts above your annual Personal Allowance, you must always pay Income Tax on:
- income from work, including full-time, part-time and temporary jobs
- profits you make if you're self-employed
- interest from bank, building society and some National Savings accounts or bonds - but not from Individual Savings Accounts (ISAs)
- pensions (including the State Pension, company or personal pensions and retirement annuities)
- dividends from company shares (unless you hold them in an ISA)
- rental income from property (unless it's £4,250 or less per year for a room in the same property you live in)
- pensioner bonds
- income from a trust
2. Tax-free income
You don't pay Income Tax on:
- income from all ISAs
- National Savings Certificates
- the first £4,250 a year from a lodger in your home
- wins on Premium Bonds or the National Lottery
3. State benefits that are taxable
The most common benefits that you pay Income Tax on are:
- the State Pension
- Jobseeker’s Allowance
- Carer's Allowance
- Employment and Support Allowance (contribution based)
- Incapacity Benefit (from the 29th week you get it)
- Bereavement Allowance
- Pensions paid by the Industrial Death Benefit scheme
- Widowed Parent’s Allowance
- Widow's pension
4. Tax-free state benefits
The most common state benefits you don’t have to pay Income Tax on are:
- Housing Benefit
- Employment and Support Allowance (income related)
- Income Support - though you may have to pay tax on Income Support if you’re involved in a strike
- Working Tax Credit
- Child Tax Credit
- Disability Living Allowance
- Child Benefit (income based - use the Child Benefit tax calculator to see if you’ll have to pay tax)
- Guardian’s Allowance
- Attendance Allowance
- Pension Credit
- Winter Fuel Payments and Christmas Bonus
- free TV licence for over 75s
- lump sum bereavement payments
- Maternity Allowance
- Industrial Injuries Benefit
- Severe Disablement Allowance
- War Widow’s Pension
- Young Person’s Bridging Allowance
5. How you pay tax on your income
If you work or get a pension
Your employer or pension provider usually deduct and pay your Income Tax automatically by using a tax code. This tells them how much they should deduct before they pay you.
Tax codes take account of your State benefits - so if you owe tax on benefits (eg the State Pension) it’s usually taken automatically from your other income.
Tax on savings interest
Tax on savings interest is taken before the interest is paid to you - but you may be able to get some or all of it back if you’re on a low income.
Tax returns
If your finances are more complex, or you’re self employed, you must pay Income Tax through the Self Assessment system.
If you have taxable income that you’re not paying Income Tax on, you must tell HM Revenue & Customs (HMRC).
HMRC Income Tax enquiries
Telephone: 0300 200 3300
Textphone: 0300 200 3319
Monday to Friday, 8am to 8pm
Saturday, 8am to 4pm
Find out about call charges