Non-taxable income

It is important to know what income is non-taxable and can be ignored for tax purposes. You only pay tax on your taxable income so you do not want to include any non-taxable income in your calculations. You do not have to tell HM Revenue and Customs (HMRC) about income which is non-taxable so you leave it off tax returns and any other forms HMRC sends you asking about your taxable income. When you are working out your taxable income you also need to know about tax allowances and tax reliefs.

The following types of income are non-taxable.

Social security benefits

The following benefits are non-taxable, so you can ignore them for tax purposes:

Council Tax Benefit
Income-related Employment and Support Allowance
Housing Benefit
Income Support, unless you are on strike when you claim
Pension Credit
Social Fund payments including budgeting loans, community care grants, crisis loans, funeral expenses payments and Sure Start Maternity grants
School uniform and clothing grants
Attendance Allowance
Back to Work Bonus
Bereavement payment
Child Benefit
child dependency additions paid with Carer’s Allowance, Incapacity Benefit, State Retirement Pension and Widowed Parent’s Allowance
Christmas bonus for pensioners
Cold Weather Payments
Disability Living Allowance
Guardian’s Allowance
lower rate short-term Incapacity Benefit paid for the first 28 week period and transitional awards of Incapacity Benefit paid to claimants who were receiving the former Invalidity Benefit at 12 April 1995 for the same incapacity
Income Support (unless the claimant is on strike)
Industrial Injuries benefits including Disablement Benefit, Reduced Earnings Allowance, Constant Attendance Allowance and Exceptionally Severe Disablement Allowance
Maternity Allowance
One-parent Benefit, only available if your claim was made before April 1997
Severe Disablement Allowance, only available to claimants who were claiming before April 2001
War Disablement Pension, including allowances
War orphan’s pension and War Widow’s/Widower's pension
Winter Fuel Payments.
Interest and income from savings and investments

Interest from the following types of savings and investments is non-taxable, so you can ignore it for tax purposes:

Child Trust Fund
National Savings and Investment (NS&I) Certificates
Individual Savings Accounts (ISAs)
Tax Reserve Certificates
withdrawals from insurance policies or investment bonds of up to 5% of the amount originally invested.
Other income which is non-taxable

Other types of income which are non-taxable and can be ignored for tax purposes include:

adoption allowances paid by a local authority or approved adoption agency
Child Tax Credit
childcare vouchers up to a value of £55 a week
work-related training courses
educational grants and student loans, including the parental contribution and scholarships
Education Maintenance Allowance (there are separate allowances for England, Wales, Scotland and Northern Ireland)
eye tests, prescription charges and help with other health costs
fares to school
Higher Education Student Support grant (there are separate grants for England, Wales, Scotland and Northern Ireland)
HM forces – mess and ration allowances
foster care receipts below specified limits
bravery awards – annuities and additional pensions paid to holders of the Victoria Cross, George Cross and most other bravery medals are non-taxable
holocaust victims – compensation
home improvement grants from your Local Authority
hospital patients’ travelling expenses under the Hospital Travel Scheme
housing grants from your Local Authority
compensation or damages awarded for personal injuries whether received in one lump sum or over a period and whether awarded by a court or out of court settlement
interest up to the time of judgment awarded by a court on compensation or damages for personal injuries
jurors’ financial loss allowance, if the juror is an employee
life assurance policies – certain bonuses and profits
long service awards to employees after 20 years of service, where the gift does not exceed £50 for each year of service and where the gift is tangible, for example a clock or shares in a company. A cash award is usually taxable unless it is a one-off payment which is not included in your contract of employment
luncheon vouchers, up to the value of 15p a working day
maintenance payments received from a spouse or civil partner
miners’ free coal or cash in lieu of coal
certain pensions. Voluntary pensions which are not connected to a past job and to which you contribute annually are tax-free. Disability pensions of members of the armed forces are tax-free. Any pension awarded to you as an employee on retirement because of an injury at work is tax-free
German and Austrian annuities and pensions for victims of **** persecution
lump sum pension payments (maximum 25% of the capital value up to a certain limit
compensation and interest for mis-sold personal pensions taken out between 29 April 1988 and 30 June 1994 inclusive
insurance benefits paid to you if you are sick, disabled or unemployed to meet your financial commitments, for example, benefits paid under mortgage protection insurance, permanent health insurance, payment protection (creditor) insurance and long-term care insurance
strike pay and unemployment pay from trade unions
premium bond prizes, winnings from the National Lottery and football pools, and from betting for example, horse racing
purchased annuities – capital element of the amount you receive
the first £30,000 of payments which are compensation for loss of a job, including statutory and contractual redundancy payments and, in certain cases, a lump-sum payment in lieu of notice.
If you have received a payment for loss of a job and are not sure whether it should be paid tax-free, you should consult an experienced adviser, for example, at a Citizens Advice Bureau. To search for details of your nearest CAB, including those that can give advice by e-mail, click on nearest CAB