Every tax-free allowance in the UK you should know about

The most well-known allowance: the first £12,570 you earn each year is income tax-free. This applies to employment income, pension income, and most other taxable income. The allowance reduces by £1 for every £2 you earn above £100,000, disappearing entirely at £125,140. If you're married or in a civil partnership and one partner earns less than £12,570, you can transfer up to £1,260 of unused allowance to the higher earner through Marriage Allowance, saving up to £252 per year in tax (as long as the higher earner is a basic rate taxpayer). You can backdate a claim up to four years.

Basic rate taxpayers can earn up to £1,000 in savings interest per year tax-free. Higher rate taxpayers get £500. Additional rate taxpayers get nothing. This means if you're a basic rate taxpayer with less than £1,000 in annual savings interest, you're effectively paying no tax on your cash savings at all, even outside an ISA. At 4% interest, you'd need over £25,000 in savings before you breach the allowance. On top of this, the starting rate for savings lets you earn up to £5,000 of interest tax-free if your other income is below £17,570. This makes Cash ISAs less critical for many basic rate taxpayers, though they protect against future rate or tax changes, and from 6 April 2027 tax on savings interest above your allowances rises to 22%, 42% and 47%.

You can save or invest up to £20,000 per tax year across ISAs, and all growth, interest, and dividends within them are completely tax-free for as long as the money stays in the ISA. This includes Cash ISAs, Stocks and Shares ISAs, Lifetime ISAs (up to £4,000 a year) and Innovative Finance ISAs. From 6 April 2027, under-65s can put no more than £12,000 of the £20,000 into Cash ISAs. The ISA allowance is use-it-or-lose-it and resets every April 6th. Over many years, maximising your ISA allowance builds a substantial pot of completely tax-free wealth.

The first £500 of dividend income per tax year is tax-free. Above that, dividends are taxed at 10.75% (basic rate), 35.75% (higher rate), or 39.35% (additional rate) from April 2026. This allowance has been reduced significantly in recent years (it was £5,000 in 2017/18), making Stocks and Shares ISAs even more important for investors. If you hold dividend-paying investments outside an ISA, £500 isn't much buffer.

You can make £3,000 in capital gains per tax year before paying Capital Gains Tax. Above that, gains are taxed at 18% (basic rate) or 24% (higher rate) for most assets. This allowance was £12,300 as recently as 2022/23, so the reduction has been dramatic. For investors, this makes holding investments inside ISAs (where gains are always tax-free) even more critical. You can use 'bed and ISA' strategies to move investments into ISAs to shelter future gains.

You can earn up to £1,000 from self-employment or trading income per tax year without paying tax or even reporting it to HMRC. Separately, you can earn up to £1,000 from property income (like renting a room on Airbnb for a few nights) without paying tax. These allowances cover casual earnings, side hustles under the threshold, and minor rental income. Above £1,000, you need to register for Self Assessment and report it (as self-employment for trading income, or as property income). You can then either deduct the £1,000 allowance or your actual expenses, but not both.

If you rent out a furnished room in your home, the first £7,500 per year is completely tax-free under the Rent a Room scheme. That's £625/month in tax-free income. This applies whether you own or rent the property (though renters need their landlord's permission). The £7,500 is halved to £3,750 each if you share the income with someone else. You don't need to tell HMRC unless your income exceeds the limit.

Pension contributions receive tax relief at your marginal rate, so effectively the government tops up your pension. Basic rate taxpayers get 20% added (contribute £80, the pension receives £100). Higher rate taxpayers can claim an additional 20% through Self Assessment, meaning a £100 pension contribution effectively costs them £60. You can get tax relief on personal contributions up to 100% of your earnings (or £3,600 gross if you earn less than that), within the £60,000 annual allowance. Plus, employer pension contributions aren't taxed as a benefit in kind. Pensions are one of the most tax-efficient savings vehicles available.

Most people leave money on the table by not using the full range of UK tax-free allowances. At minimum, make sure you're using your ISA allowance, getting full pension tax relief, and claiming Marriage Allowance if you're eligible. Check whether the Personal Savings Allowance means you don't need to worry about tax on your cash savings. And if you have a spare room, Rent a Room Relief is incredibly generous. The tax system is complex, but these allowances are there for everyone, so use them. If you need help building the savings to put in an ISA in the first place, SYM gives you a small daily amount to put aside.