UK Income Tax Basics

Income Tax

Income Tax is a tax on income. Not all income is taxable and only 'taxable income' above a certain level is taxed. There are also other reliefs and allowances that can reduce the Income Tax - and in some cases no tax is payable.

Taxable Income

Taxable income includes:

• Earnings from employment
  Includes income from full, part-time and temporary employment.
  If you get perks or benefits from your employer these may also be taxable.
• Earnings from self-employment
  Profits you make from working for yourself as a sole trader or partner.
• Most pensions incomes (State, company and personal pensions)
  State Pension.
  Personal or company pensions.
  Retirement annuity.
• Interest on most savings
  Bank and building society interest - not including Individual Savings Accounts (ISAs) and Personal Equity Plans (PEPs).
  National Savings and Investments accounts and bonds.
• Income from shares (dividends)
  Dividends on company shares - not including dividend income from ISAs and PEPs.
• State benefits
  Carer's Allowance.
  Jobseeker's Allowance.
  Employment and Support Allowance - 'contribution' based (if you have paid enough National Insurance contributions). Incapacity Benefit - from week 29.
  Weekly Bereavement Allowance.
• Rental income
  From a lodger in your only or family home if more than ú4,250 a year (ú2,215 if split jointly).
  From a second property.
• Income paid to you from a trust
• Pensioner bonds.

Non-taxable Incomes

• State benefits The most common non-taxable state benefits are:
  Disability Living Allowance.
  Attendance Allowance.
  Lump sum Bereavement Payments.
  Pension Credit.
  Free TV licence for over 75s.
  Winter Fuel Payments and Christmas Bonus.
  Housing Benefit.
  Employment and Support Allowance - income based (if you haven't paid enough National Insurance contributions).
  First 28 weeks of Incapacity Benefit.
  Income Support - certain payments.
  Child Benefit.
  Guardian's Allowance.
  Maternity Allowance.
  Industrial Injuries Benefit.
  Severe Disablement Allowance.
  War Widow's Pension.
  Young Person's Bridging Allowance.
• Interest on savings
  All ISAs and PEPs.
  Savings Certificates.
• Rents
  
  First ú4,250 a year from a lodger in your only or family home - ú2,125 if split jointly.

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