In 2025, UK residents can legally earn up to £18,570 completely tax-free—without needing any DWP benefits. How? By taking full advantage of three powerful tax-free allowances: the personal allowance, starting rate for savings, and personal savings allowance.
If you’re a pensioner, part-time worker, or living on savings, this tax trick could help you keep more of your money in your pocket.
Let’s walk through how you can make it work for you.
Breakdown
Here’s how the £18,570 tax-free income is structured:
| Allowance | Amount (2025/26) | What It Covers |
|---|---|---|
| Personal Allowance | £12,570 | Income from earnings or pensions |
| Starting Rate for Savings | £5,000 | Interest from savings if income is low |
| Personal Savings Allowance | £1,000 | Interest from savings for most people |
Together, they add up to £18,570. But how they apply depends on your situation.
Personal
First up is the personal allowance. Everyone in the UK can earn up to £12,570 tax-free from sources like employment, pensions, or benefits.
If you earn exactly £12,570 per year from a pension or job, you pay zero tax. Simple, right? It’s your income tax-free base.
Savings
Next is the starting rate for savings—a little-known gem. If your non-savings income (like wages or pension) is under £12,570, you may qualify for up to £5,000 in tax-free savings interest.
However, it reduces £1 for every £1 you earn above that £12,570 limit.
| Non-Savings Income | Starting Rate Allowed |
|---|---|
| £12,570 | £5,000 |
| £14,000 | £3,000 |
| £17,570+ | £0 |
This allowance rewards those who live mainly on savings interest with little to no other income.
Personal
In addition, you get the personal savings allowance. Basic-rate taxpayers (those earning under £50,270) can earn up to £1,000 in savings interest, tax-free.
Higher-rate taxpayers get only £500, and additional-rate taxpayers get nothing. But most people fall into the basic-rate category.
So, even if your other savings allowances are used up, this one gives you more breathing room.
Example
Here’s how this plays out in real life.
Imagine Sam is retired and gets:
- £12,570 in pension income
- £6,000 in savings interest
Here’s how it breaks down:
- £12,570 pension = covered by personal allowance
- £5,000 savings interest = covered by starting rate for savings
- £1,000 more savings interest = covered by personal savings allowance
That means Sam’s full £18,570 is completely tax-free. No income tax due at all.
Qualify
Who can benefit from this?
- Pensioners with modest income
- Part-time workers earning under the threshold
- People living off savings or low DWP income
- Anyone not in higher tax brackets
Just note: this isn’t a DWP benefit. It’s a tax break based on HMRC rules—not a payment.
Exclusions
Some income types don’t count toward this tax-free mix:
- ISA interest – already tax-free, not included
- Dividends – separate allowance of £500 in 2025
- Capital gains – separate rules and thresholds
Also, once your total income crosses £17,570, you start losing the starting rate advantage.
Maximise
Here’s how to make sure you squeeze every penny out of your tax-free entitlement:
Step 1: Check your non-savings income (job, pension, benefits)
Step 2: Calculate your savings interest (use your bank’s statements)
Step 3: Apply the personal allowance, then calculate how much of the starting rate you qualify for
Step 4: Add the £1,000 personal savings allowance if you’re a basic-rate taxpayer
Step 5: Use HMRC’s free tax checker tool to verify your results
It’s completely legal, simple to apply, and highly beneficial—especially if you’re living on a low income or fixed pension. It’s all about knowing how to work the system—legally and wisely.
FAQs
Is this a DWP payment?
No, this is a tax benefit, not a payment from the DWP.
Do pensions count as income?
Yes, pension income counts towards your Personal Allowance.
Can I get this if I work part-time?
Yes, as long as your income is within the limits.
Are savings from ISAs included?
No, ISA interest is already tax-free and not included.
What if I earn more than £18,570?
You may lose the Starting Rate for Savings.
