UK Tax Free Allowances

Personal Allowance

This relates to any income but has to be the first £12,570 earned (unless your tax code is not 1257L)

It means that on the first £12,570 earned in a year you pay nothing in tax. If you have then HMRC will refund you in due course. See their guidance here.

Savings Allowance

So this one was introduced in 2016. All savings income used to be taxed at your tax bracket.

If you are a Basic Rate Taxpayer this means you can earn £1,000 in savings income tax-free.

If you are a Higher Rate Taxpayer this reduces to £500 per year.

And Additional Rate? Sorry - you get nothing!

Any income received in ISAs does not get included in these allowances as they are already tax-free. Learn more on ISAs here.

Dividend Allowance

If you hold any stocks or shares chances are you will receive dividends.

Dividends are where companies share their profits with investors at a certain point in the year.

Everyone in the UK receives a tax-free dividend allowance of £500 (as of 2024/35 tax year)

Trading Allowance

If you do some freelance work or have a small side business that earns less than £1k a year this will also be tax free. If you exceed the £1,000 then it becomes a trade and is liable to tax.

However, you can deduct £1,000 from your total income if this goes above! You cannot deduct this AND your expenses though, so go for whichever is higher to get more tax relief!

Rent-a-room relief

If you rent out a room in your house (which must be fully furnished) you can earn up to £7,500 per year before you have to pay tax on the income received.

Anything over the £7.5k is taxable at your tax rate. It is worth noting that if you opt for this scheme you cannot deduct any expenses from your rental income.

The £7.5k allowance is per household, so you would only be able to claim £3,750 each if you were a couple.

Blind Person’s Allowance

If you are registered blind you could be eligible for an additional £2.5k tax free personal allowance bringing your total up to £15k per year.

If you are unable to work this can be transferred to your spouse. To check eligibility see the guidance here.

Have we missed anything? If you would like to know more on this topic or think that we are missing any information please let us know! All feedback is much appreciated.

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