If you live in the UK and want to legally earn up to £18,570 without paying a penny in income tax in 2025, you’re not alone. Many low earners, pensioners, and savers are tapping into a little-known combination of tax-free allowances that lets them keep more of their income. This isn’t a DWP payment or hidden scheme—it’s a legal tax strategy based entirely on HMRC rules.
Let’s walk through how it works and how you can make sure you’re getting the most from your money this year.
Overview
In the 2025/26 tax year, UK residents can legally earn up to £18,570 tax-free if they structure their income properly. This figure comes from combining three specific tax-free allowances:
| Allowance Type | Maximum Limit |
|---|---|
| Personal Allowance | £12,570 |
| Starting Rate for Savings | £5,000 |
| Personal Savings Allowance | £1,000 |
| Total Tax-Free Income | £18,570 |
This combination is particularly helpful for those living off pensions, part-time wages, or savings.
Personal
Everyone in the UK gets a Personal Allowance. For the 2025/26 tax year, it’s still set at £12,570. This covers your earnings from employment, pensions, or DWP benefits.
If your total income (excluding interest from savings) stays within this allowance, you pay no income tax at all. This is your starting point.
Savings
Now comes the little-known Starting Rate for Savings. If your non-savings income (like pension or salary) is less than £17,570, you might be able to get up to £5,000 in interest from savings tax-free.
But here’s the trick: the more non-savings income you have, the less of this allowance you get. It decreases £1 for every £1 you earn over the Personal Allowance of £12,570.
Examples:
- If your non-savings income is £12,570, you qualify for the full £5,000 starting rate.
- If you earn £14,000, you only get £3,570.
- If you earn £17,570 or more, this allowance is wiped out.
So the lower your pension or job income, the more of your savings interest you can shield from tax.
Personal Savings
On top of everything else, the Personal Savings Allowance gives basic-rate taxpayers an additional £1,000 tax-free savings interest allowance—no matter how much non-savings income you have (as long as you’re not a higher-rate taxpayer).
If you’re a higher-rate taxpayer (earning over £50,270), this drops to £500. If you’re an additional-rate taxpayer (over £125,140), you don’t get this at all.
Example
Let’s look at a simple case.
Anna is 67 years old.
- She receives £12,570 in pension income.
- She earns £6,000 in interest from savings.
Here’s the breakdown:
- £12,570 covered by the Personal Allowance
- £5,000 of savings interest covered by the Starting Rate
- The remaining £1,000 covered by the Personal Savings Allowance
Result: Anna pays zero tax on £18,570 total income.
Who
This tax-free combo is especially useful for:
- Retirees with modest pension income
- Part-time earners who also have savings
- Low-income households with interest-bearing bank accounts
- Individuals on DWP benefits with some savings on the side
Just remember—this isn’t a DWP “payment” but a smart tax structure based on HMRC rules.
Limits
Not every type of income fits into this tax-free plan. Here’s what doesn’t count:
- ISAs: Already tax-free, so don’t use up your allowances
- Dividends: Have a separate allowance (£500 in 2025/26)
- Capital gains: Covered under Capital Gains Tax, not income tax
Also, if your total income (excluding savings interest) is more than £17,570, you won’t get the £5,000 Starting Rate.
Tips
Want to make this work for you? Here’s how to get started:
Step 1 – Add up your non-savings income
Use pension statements, payslips, or benefit letters to get your total.
Step 2 – Estimate your savings interest
Check your bank statements or use your account’s interest rate to calculate.
Step 3 – Apply your allowances
Subtract your income from £12,570 to figure out how much of the £5,000 Starting Rate you can claim. Then add your £1,000 Personal Savings Allowance.
Step 4 – Use HMRC tools
The HMRC website has calculators to help confirm your figures.
This strategy won’t apply to everyone, but for those it does, it’s a game-changer.
FAQs
Can I really earn £18,570 tax-free?
Yes, by combining three legal HMRC allowances.
Do ISAs count toward this limit?
No, ISA income is already tax-free.
Is this a DWP benefit?
No, it’s a tax-free income strategy.
What income affects the savings rate?
Non-savings income like pensions or wages.
Do I need to apply for these allowances?
No, HMRC applies them automatically if eligible.
