Earn Up to £18,570 Tax-Free in 2025 – Yes, It’s Still Possible If you’re retired, working part-time or living off savings, there’s a little known way to legally earn up to £18,570 tax-free in the UK during the 2025/26 tax year.
And no — this isn’t some secret loophole or a government handout. It’s just how HMRC structures certain tax-free allowances. If you know how they work, you can keep more of your money and pay less tax.
Let’s break it down in plain English so you can see if you qualify — and how to make the most of it.
Tax-Free Income From DWP
| Feature | Details |
|---|---|
| Total Tax-Free Income | Up to £18,570 in 2025/26 |
| Components | Personal Allowance (£12,570) + Starting Rate for Savings (£5,000) + Personal Savings Allowance (£1,000) |
| Who Benefits Most | Low earners, pensioners, and those with savings income |
| Official Source | HMRC Tax-Free Allowances |
| Caution | Not a direct DWP payment; depends on income type and savings |
What Exactly Is This £18,570 Tax-Free Income?
It’s not a direct payment from the Department for Work and Pensions (DWP), but rather a combination of three separate tax-free allowances offered by HMRC:
- Personal Allowance (£12,570)
- Starting Rate for Savings (£5,000)
- Personal Savings Allowance (£1,000)
When used together correctly, these allowances let you earn or receive income without paying a penny in income tax — as long as your total falls within the limits.
This works best for people with low earnings , retirees , or those who live off savings interest .
Let’s Look at Each Allowance
Personal Allowance: Your First £12,570 Is Tax-Free
This is the amount of income you can earn each year before paying any income tax.
For the 2025/26 tax year , that threshold remains at £12,570 .
So whether you’re getting a pension, part-time wages or benefits, you can earn up to this amount without owing anything to HMRC.
Think of this as your tax-free base layer .
Starting Rate for Savings: Another £5,000 Off the Table
Here’s where things get interesting.
If your non-savings income (like wages or pensions) is below £12,570 , you get an extra £5,000 tax-free allowance on top of your personal allowance — but only for savings interest .
That means you can earn up to £5,000 in bank interest without paying tax on it.
Example:
- Non-savings income = £12,570 → Full £5,000 starting rate
- Non-savings income = £14,000 → Only £3,500 starting rate
- Over £17,570 → No starting rate available
Personal Savings Allowance: £1,000 More Tax-Free
Even if you don’t qualify for the full Starting Rate, there’s still another £1,000 of savings interest you can earn tax-free — known as the Personal Savings Allowance .
Basic-rate taxpayers (those earning up to £50,270) get the full £1,000.
Higher-rate taxpayers (over £50,270) only get £500, and additional-rate taxpayers (over £150,000) get nothing.
Adding It All Up: The £18,570 Breakdown
Let’s look at a real-life example:
You’re a retired person with:
- £12,570 in pension income
- £6,000 in savings interest
Here’s how the allowances apply:
| Source | Amount | Covered By |
|---|---|---|
| Pension Income | £12,570 | Personal Allowance |
| Savings Interest | £5,000 | Starting Rate for Savings |
| Remaining Interest | £1,000 | Personal Savings Allowance |
You just earned £18,570 tax-free. That’s right—entirely legitimate and fully approved by HMRC.
Who benefits most from this strategy?
You might be eligible if:
- You’re a pensioner with a modest income-you know, the kind that lets you live comfortably without breaking the bank
- You’re a part-time worker earning under £12,570-a decent income without the full-time stress
- You’re living off savings interest-that nest egg you’ve been building up
- You’re on Universal Credit or other benefits, but have savings generating interest
This strategy is particularly useful for people who use fixed-term accounts, high-interest savings pots or cash ISAs (which are already tax-free, but this helps cover other types too).
What doesn’t count towards these allowances?
Keep in mind:
- ISAs are already tax-free-so they don’t count towards these allowances.
- Dividend income has its own rules-the Dividend Allowance is £500 in 2025.
- Capital gains are treated separately under Capital Gains Tax (CGT).
If your total income exceeds £17,570-you’ll start losing some of the Starting Rate for Savings.
How to make the most of this tax-free opportunity
Want to take full advantage? Here’s what to do:
Step 1: Know your non-savings income
Take a look at your payslips, pension statements or DWP benefit letters to figure out how much you earn outside of savings.
Step 2: Estimate your savings interest
Use past bank statements or projected returns to work out how much interest you’ll earn in the tax year.
Step 3: Apply the allowances
Start with your personal allowance, then apply the starting rate and personal savings allowance to your savings interest.
If your total stays under £18,570-you’re in tax-free territory!
Step 4: Use HMRC tools
HMRC has online calculators and tools to help you double-check your figures and avoid any surprises.
FAQs: Your top questions answered
Is this a new DWP benefit?
No-it’s not a DWP benefit at all. It’s a result of how HMRC sets tax-free allowances for income and savings.
Do I need to apply for this?
No application required. Just make sure your income and savings fall within the thresholds.
What happens if I go over the limit?
You’ll only pay tax on the amount above the allowances-not the entire £18,570.
Can I still use ISAs?
Yes! ISAs remain completely tax-free and are a great addition to this strategy.