Taxable and Tax-free State Benefits

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Taxable State Benefits

Income Tax is the tax you pay on the income you receive. However not all income is taxable. Examples of income which is taxable are incomes from employment, profits if you’re self-employed, most pensions, rental income and certain state benefits.

Some state benefits are tax-free, and some are taxable.

The most common state benefits that you don’t pay Income Tax on are:

  • Working Tax Credit
  • Child Benefit (Income Based)
  • Guardian’s Allowance
  • Housing Benefit
  • Maternity Allowance
  • Pension Credit
  • Employment and Support Allowance (Income related)
  • Attendance Allowance
  • Disability Living Allowance
  • Income support
  • Personal Independence Payment (PIP)
  • Winter Fuel Payments and Christmas Bonus
  • Severe Disablement Allowance
  • Free TV licence for over-75s
  • Universal Credit
  • Lump-sum bereavement payments
  • Industrial Injuries Benefit
  • War Widow’s Pension

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

  • Jobseeker’s Allowance
  • The State Pension
  • Employment and Support Allowance (contribution based)
  • Bereavement Allowance
  • Carer’s Allowance
  • Incapacity Benefit (from 29th week onwards)
  • Pensions paid by the Industrial Death Benefit Scheme
  • Widow’s pension
  • Widowed Parent’s Allowance

Your tax code can take taxable state benefits into account. So, if you owe tax on a taxable state benefit, it is usually taken automatically from your other income.

If you are a Sole Trader or Self-employed and therefore complete a Self-Assessment Tax Return every year, you will need to declare any taxable state benefits on your Self-Assessment Tax Return.

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