State Benefits that are tax free
September 2008
Please ensure that you take account of the following notes when you declare benefits on your tax return.
The State Retirement Pension
Your state pension is taxable but do not include either the Winter Fuel Payment or the Christmas Bonus as both of these latter payments are tax-free.
Incapacity Benefit (IB)
- Short term IB paid at the lower rates is not taxable for the first 28 weeks, after 28 weeks it becomes taxable.
- Short term IB paid at the higher rates is taxable.
- Long term IB paid at the higher rates is taxable unless benefit commenced before 13 April 1995.
The new Employment and Support Allowance
This new benefit is being introduced from October 2008. It will replace the existing Incapacity Benefit and Income Support for all new claimants.
- If the payment of this allowance is contribution based it will be taxable.
- If the payment is income based it will be tax-free.
