Many UK taxpayers believe their personal tax‑free allowance is fixed at £12,570. However, guidance from HM Revenue and Customs shows that, in certain situations, this allowance can increase significantly — in some cases rising as high as £18,570.
This little‑known rule does not apply to everyone, but for those who qualify, it can mean paying far less tax than expected. The issue is that many people who could benefit are either unaware of the rule or do not understand how it works.
This article explains the £18,570 figure in clear terms, who may be eligible, and what steps you can take to ensure you are not paying more tax than necessary.
What the £18,570 tax‑free allowance means
The £18,570 figure refers to the total amount of income some individuals can receive without paying income tax, once specific allowances are combined correctly.
It is not a new headline allowance and it does not replace the standard Personal Allowance. Instead, it reflects how multiple allowances interact under existing tax rules.
For eligible taxpayers, this can result in a much higher level of income being received tax‑free.
Why most people think £12,570 is the limit
The standard Personal Allowance in the UK is £12,570. This is the amount most people can earn before income tax is applied.
Because this figure is widely publicised, many taxpayers assume it is the absolute maximum. In reality, the tax system includes additional allowances that can apply in certain circumstances.
The problem is not the lack of rules — it is the lack of awareness.
The allowance that increases the total
The key to reaching £18,570 lies in combining the Personal Allowance with the starting rate for savings.
Under current rules, some individuals can earn:
- £12,570 from general income
- Up to £5,000 from savings interest
This brings the total potential tax‑free income to £18,570.
However, strict conditions apply.
How the savings starting rate works
The starting rate for savings allows some people to earn up to £5,000 in savings interest without paying tax.
This allowance is only available if your other taxable income is below the Personal Allowance. As your income increases, the £5,000 allowance reduces gradually.
It is designed to help people with low non‑savings income benefit from modest savings.
Who can benefit from the full £18,570
People most likely to benefit include:
- Pensioners with low pension income
- Part‑time workers with savings
- People who rely mainly on savings interest
- Individuals with irregular income
Those whose non‑savings income stays within the Personal Allowance are in the strongest position.
Why pensioners are often affected
Many pensioners receive income from a mix of sources, such as:
- State Pension
- Small workplace or personal pensions
- Savings interest
If their non‑savings income stays below £12,570, they may be able to receive up to £5,000 in savings interest tax‑free.
This is one reason why pensioners can sometimes reach the £18,570 threshold.
How savings interest is counted
Savings interest includes interest from:
- Bank savings accounts
- Building society accounts
- Fixed‑rate bonds
It does not include interest earned in Cash ISAs, as those are already tax‑free.
HMRC automatically receives interest information from banks, so it is important that tax codes are correct.
What happens if income goes above the limit
The £5,000 savings allowance reduces by £1 for every £1 your non‑savings income exceeds the Personal Allowance.
This means:
- If your income is £13,570, the allowance falls to £4,000
- If income reaches £17,570, the allowance falls to zero
Understanding this taper is essential.
Why many people miss out
Many taxpayers miss out because:
- They assume savings interest is always taxable
- They do not understand how allowances interact
- Their tax code has not been updated
- They rely on assumptions rather than checking
As a result, some people pay tax they do not actually owe.
How PAYE tax codes affect this rule
PAYE tax codes determine how much tax is deducted at source. If HMRC does not correctly account for savings income and allowances, deductions can be wrong.
This can lead to:
- Over‑deduction of tax
- Unexpected tax bills
- Missed refunds
Checking your tax code is an important step.
Why HMRC calls this a “little‑known” rule
HMRC guidance includes the rule, but it is not widely explained in simple terms.
The system assumes taxpayers understand how different allowances interact, which is not always realistic — especially for older people or those with multiple income sources.
This is why the rule is often described as hidden in plain sight.
Does this apply to people in work
It can apply, but only in limited circumstances.
People in work with income close to or above £12,570 will see the savings allowance reduce quickly. For full‑time workers, reaching £18,570 tax‑free is unlikely.
The rule is most useful for those with low earned income.
What about couples
Each individual has their own allowance. Couples cannot combine allowances, but both partners may benefit separately if their income levels qualify.
In households with shared savings, how interest is split can affect tax outcomes.
How to check if you qualify
You should:
- Add up all non‑savings income
- Calculate total savings interest
- Compare figures with allowance thresholds
- Review your tax code
This process often reveals whether tax has been overpaid.
What to do if you think tax was overpaid
If you believe you have paid too much tax:
- Check HMRC correspondence
- Review your Personal Tax Account
- Contact HMRC for clarification
Refunds are possible if overpayments are identified.
Can refunds be backdated
Yes. HMRC can refund overpaid tax from previous tax years, provided records support the claim.
This means some people may be entitled to a lump‑sum refund if the rule was missed in earlier years.
Why rising interest rates matter
Higher interest rates mean more people are earning taxable interest.
This has pushed the savings allowance into relevance for millions who previously ignored it. The £18,570 figure matters more now than it did a few years ago.
Common myths that cause confusion
Some common misconceptions include:
- “The allowance is automatically applied”
- “Savings interest is always taxed”
- “HMRC will fix it without checking”
None of these are always true.
When professional advice helps
If your income is complex, advice may help ensure allowances are used efficiently.
This is particularly useful for:
- Pensioners
- People with multiple savings accounts
- Those close to income thresholds
Why checking now is important
Mistakes can continue year after year if not corrected.
With living costs high, ensuring you are not overpaying tax can provide much‑needed financial relief.
What has not changed
This is not a new allowance and not a loophole. It is an existing rule that applies under specific conditions.
The tax system itself has not changed — awareness has.
Key points to remember
- £18,570 is possible in specific cases
- It combines the Personal Allowance and savings starting rate
- Most useful for low‑income savers
- Not automatic
- Checking your tax code is essential
Final thoughts
The little‑known HMRC rule that can lift tax‑free income to £18,570 highlights how complex — and often misunderstood — the UK tax system can be. While it does not apply to everyone, it can make a significant difference to those who qualify, particularly pensioners and low‑income savers.
Understanding how allowances interact is the key to paying the right amount of tax — no more and no less. Taking time to review income, savings, and tax codes could uncover relief you did not realise you were entitled to.