Individual Taxation

Income Tax is a tax you pay on your income. You do not have to pay tax on all types of income

You pay tax on things like:

• money you earn from employment
• some state benefits
• the Test and Trace Support Payment in England (or the Self-isolation Support Payment in Scotland and the Self-isolation Support Scheme in Wales)
• most pensions, including state pensions, company and personal pensions and retirement annuities
• rental income (unless you’re a live-in landlord and get less than the rent a room limit)
• benefits you get from your job
• income from a trust
• interest on savings over your savings allowance
• the first £1,000 of income from property you rent (unless you’re using the Rent a Room Scheme)
• income from tax-exempt accounts, like Individual Savings Accounts (ISAs) and National Savings Certificates
• dividends from company shares under your dividends allowance
• some state benefits
• premium bond or National Lottery wins
• rent you get from a lodger in your house that’s below the rent a room limit

State benefits that are taxable

The most common benefits that you pay Income Tax on are:

• Bereavement Allowance (previously Widow’s pension)
• Carer’s Allowance
• contribution-based Employment and Support Allowance (ESA)
• Incapacity Benefit (from the 29th week you get it)
• Jobseeker’s Allowance (JSA)
• pensions paid by the Industrial Death Benefit scheme
• the State Pension
• Widowed Parent’s Allowance

Tax-free state benefits

The most common state benefits you do not have to pay Income Tax on are:

• Attendance Allowance
• Bereavement support payment
• Child Benefit (income-based – use the Child Benefit tax calculator to see if you’ll have to pay tax)
• Child Tax Credit
• Disability Living Allowance (DLA)
• free TV licence for over-75s
• Guardian’s Allowance
• Housing Benefit
• Income Support – though you may have to pay tax on Income Support if you’re involved in a strike
• income-related Employment and Support Allowance (ESA)
• Industrial Injuries Benefit
• lump-sum bereavement payments
• Maternity Allowance
• Pension Credit
• Personal Independence Payment (PIP)
• Severe Disablement Allowance
• Universal Credit
• War Widow’s Pension
• Winter Fuel Payments and Christmas Bonus
• Working Tax Credit

Taxation for Resident and Non-Resident

If an individual is resident and domiciled in the United Kingdom, they will be taxed on their worldwide income and capital gains.

If an individual is not UK tax resident, they will usually be taxed on their UK-source income, but will not generally be taxed on capital gains, other than in respect of UK property/’property-rich’ companies or carried interest, even if the asset is located in the United Kingdom. Gains in respect of UK residential property owned by non-residents have been subject to UK CGT at 28% for a number of years, and the charge to UK capital gains tax was extended to all UK property disposed of by non-UK residents and also shares in ‘property-rich’ non-UK companies from April 2019.

In addition, where the asset is used for business purposes in the United Kingdom through a UK branch or agency, any gains are also subject to UK CGT. There are also special rules for income and capital gains tax where a person has become non-UK resident but returns to the United Kingdom within, broadly, five years – referred to as the temporary non residence rules.

If an individual is resident but not domiciled (and not deemed domiciled) in the United Kingdom, they can elect for the remittance basis of taxation. This means their non-UK investment income and capital gains are only taxed if they are remitted to or used in the United Kingdom. More detail on this is included below.