Wouldn’t it be great to keep more of your money without paying a single penny in tax? Well, for millions of people in the UK, that’s exactly what’s possible in 2025—if you know how to make the system work for you.
Using a smart mix of three built-in tax allowances, you could earn up to £18,570 completely tax-free this tax year—and the best part? Most of it happens automatically.
What Is the £18,570 Tax-Free Income?
This isn’t a cash payment from the DWP (Department for Work and Pensions), and it’s not a special scheme you need to sign up for.
Instead, it’s the maximum amount of income you can earn in the 2025/26 tax year without paying income tax, thanks to three government allowances that many people aren’t fully using:
- Personal Allowance
- Starting Rate for Savings
- Personal Savings Allowance
When used together, they let you keep more of your income, especially if you’re a pensioner, part-time worker, or someone living off savings.
Break Down of Each Allowance
1. Personal Allowance – £12,570
Everyone in the UK can earn up to £12,570 a year before they pay any income tax. This applies whether your income comes from a job, pension, rental property, or even some state benefits.
If you earn under this limit, you owe zero tax.
2. Starting Rate for Savings – Up to £5,000
Here’s where it gets interesting:
If your non-savings income (wages, pension, etc.) is less than £12,570, you may also qualify for an extra £5,000 of tax-free savings interest.
But there’s a catch:
- The more you earn from non-savings sources, the smaller this allowance gets.
- For every £1 you earn above £12,570, your £5,000 starting rate drops by £1.
So, if you earn £10,000 from a pension, you still get the full £5,000.
But if you earn £13,000, your starting savings rate drops to £4,570.
3. Personal Savings Allowance (PSA) – £1,000
This is available to basic-rate taxpayers (20%). It allows you to earn £1,000 in interest from savings without paying any tax.
If you’re a higher-rate taxpayer (40%), your allowance drops to £500.
Additional-rate taxpayers (45%) don’t get this at all.
But for most people, this is a huge bonus—especially if you have interest-bearing accounts or bonds.
Who Are Eligible for the Full £18,570?
To get the full tax-free income, you need to meet these conditions:
Be a UK resident.
Have a non-savings income of £12,570 or less (from pension, job, etc.).
Earn interest income from savings (e.g. savings accounts, fixed deposits).
Be a basic-rate taxpayer.
This is perfect for:
- Pensioners with savings
- Low-income workers
- Part-time freelancers
- Students with savings income
- Anyone with a modest income and high interest-earnings
How to Maximise Your Tax-Free Income
Want to take full advantage? Here’s how:
1. Track Your Income Sources
Separate your income into non-savings (wages, pensions) and savings (bank interest, bonds). This will help you see how each allowance applies to you.
2. Use ISAs (Individual Savings Accounts)
You can earn tax-free interest on up to £20,000 per year in an ISA—on top of the £18,570 allowance!
3. Plan as a Couple
If you’re married or in a civil partnership, both of you can claim these allowances. That means a couple could earn up to £37,140 tax-free if structured properly.
4. Use HMRC’s Free Tools
Use HMRC’s online Income Tax Calculator to check how much tax you owe—or don’t owe.
5. Speak to a Financial Adviser
Have multiple income sources? Unsure about your tax code? A tax adviser can help you optimize everything legally and efficiently.
FAQs
Is this £18,570 from the DWP?
No—it’s not a DWP benefit. This is about income tax rules managed by HMRC, not the Department for Work and Pensions.
Do I need to apply to get these allowances?
Usually, no application is needed. The Personal Allowance and PSA are applied automatically.
But in unusual cases, like if you have high savings income but low wages, you might need to contact HMRC or file a Self Assessment.
Can pensioners benefit from this?
Yes! Many retired people with modest pensions and savings are in the perfect position to use all three allowances and pay no tax at all.
Does Universal Credit count towards income?
No. Universal Credit is not taxable and doesn’t affect these allowances.
Will these tax-free limits change in the future?
Possibly. These figures apply to the 2025/26 tax year and may change based on future budgets and government policies.
