It is important to make the distinction between income which is exempt from tax and tax-free income. Tax-free income includes personal allowances and reliefs. 

Personal allowances

In addition to having income which is exempt from tax, everyone will have a part of their income which is free of tax. This is because all taxpayers are entitled to personal tax allowances which are deducted from their income. This means that these will give the taxpayer a certain amount of income which is free of tax.

Reliefs

As well as being able to claim personal allowances against income tax which give taxpayers a certain amount of income which is tax free, many taxpayers may be able to claim reliefs against income tax. Reliefs against income tax are amounts which are allowed against the person's tax bill because s/he has had to make certain outgoings, commonly in connection with her/his work.

Some types of income are exempt from tax.

Interest from savings

Interest from some types of savings is exempt from tax. The following types of interest are exempt:-

• interest from Tax Exempt Special Savings Accounts (TESSAs)
• the first £70 of interest on a National Savings Bank ordinary account. Interest paid on other accounts is not exempt
• interest on National Savings Certificates
• interest from Save As You Earn certified contractual savings schemes
• loan interest paid by a member of a credit union to the union
• interest from Personal Equity Plans (PEPs), unless the amount of interest withdrawn in the tax year is more than £180.
• interest from Individual Savings Accounts (ISAs).