How Much Can You Really Earn Tax-Free in the UK in 2025?

One of the most common questions UK taxpayers ask every year is: “How much can I earn tax-free?” With the 2025/26 tax year now active, it’s important to understand the allowances and reliefs available to you. Maximising your tax-free income can save you thousands of pounds and make a big difference to your financial planning. This guide explains everything you need to know about the UK’s tax-free allowances, who qualifies, and smart strategies to make the most of them.

The Personal Allowance in 2025/26

The personal allowance is the amount of income you can earn each year before you start paying income tax. For the 2025/26 tax year, the personal allowance remains at £12,570.

That means if your total annual income is £12,570 or less, you will not pay any income tax at all.

When Does the Personal Allowance Reduce?

If your income exceeds £100,000, your personal allowance is gradually reduced. For every £2 you earn above £100,000, your allowance is reduced by £1. This means that once your income reaches £125,140, you lose your personal allowance entirely.

Other Tax-Free Allowances

In addition to the personal allowance, there are other allowances that let you earn more income tax-free:

1. Savings Allowance

If you earn interest on savings, you may qualify for a tax-free allowance:

• Basic Rate taxpayers: £1,000
• Higher Rate taxpayers: £500
• Additional Rate taxpayers: £0

2. Dividend Allowance

For those who receive dividend income, the first £500 of dividends is tax-free in 2025/26.

3. ISA Allowance

With an Individual Savings Account (ISA), you can save or invest up to £20,000 each year and all returns are completely tax-free.

4. Trading Allowance

You can earn up to £1,000 from self-employment or casual trading without paying tax or filing it as income.

5. Property Allowance

You can earn up to £1,000 per year from property income (for example, renting out your driveway or part of your home) tax-free.

6. Rent-a-Room Scheme

If you rent out a furnished room in your home, you can earn up to £7,500 per year tax-free under this scheme.

Examples of Tax-Free Income in Practice

Let’s look at some real-world scenarios:

Example 1: Average Earner

James earns £11,500 from his job. He pays no income tax, as he is below the £12,570 personal allowance threshold.

Example 2: Saver with Interest

Emily earns £25,000 from employment and £800 interest from savings. She pays tax on her salary but her savings interest is covered by the £1,000 savings allowance.

Example 3: Homeowner with Lodger

Sarah earns £30,000 from her job and £7,200 from renting out a furnished room in her home. She does not pay tax on the rental income because it falls within the Rent-a-Room scheme.

How to Maximise Your Tax-Free Income

• Use your full ISA allowance each year.
• Consider pension contributions to reduce taxable income.
• Split savings or investments between spouses to use both allowances.
• Take advantage of the property allowance or trading allowance for side income.

Tax-Free Income in Scotland

In Scotland, income tax bands differ slightly, but the personal allowance of £12,570 applies the same way. Scottish taxpayers also benefit from the same savings, dividend, and ISA allowances.

Frequently Asked Questions

1. How much can I earn tax-free in the UK in 2025?

You can earn up to £12,570 tax-free through the personal allowance. Additional allowances (such as savings, dividend, and property allowances) can increase your tax-free income further.

2. What happens if I earn more than £100,000?

Your personal allowance is reduced once your income exceeds £100,000 and disappears completely once you earn £125,140 or more.

3. How much can I save in an ISA tax-free?

You can save or invest up to £20,000 in an ISA in 2025/26 without paying any tax on the returns.

4. Can I earn money from a side hustle tax-free?

Yes, you can earn up to £1,000 from trading or property income tax-free using the trading and property allowances.

5. Is the tax-free allowance the same in Scotland?

Yes, the personal allowance of £12,570 applies across the UK, including Scotland, though tax bands differ for higher earners.