Is this a way of getting £18,000 tax-free?

Q. I understood that if you have untaxed income from bank interest or share dividends, then if the total was below around £18,000 it would not be subject to income tax. Is this correct?

A. You are broadly correct, but the amount could actually be a little higher. Under current tax rules and thresholds, you could potentially receive income of up to £19,070 without owing UK income tax, depending on where that income comes from.

This could be achieved by making use of various allowances and tax-free bands:

1. Personal Allowance: in the current tax year you can receive up to £12,570 of income without having to pay income tax.
2. Personal Savings Allowance: basic-rate taxpayers can receive up to £1,000 of savings interest tax-free. This falls to £500 for higher-rate taxpayers. Additional-rate taxpayers don’t have a Personal Savings Allowance.
3. Starting rate for savings: you could receive up to a further £5,000 of savings interest at a 0% tax rate. You can get the full £5,000 if your non-savings income is no more than your £12,570 Personal Allowance. Above this point, the amount available is reduced by £1 for every £1 of non-savings income, disappearing completely once non-savings income reaches £17,570.
4. Dividend Allowance: you can currently receive up to £500 of dividend income each tax year without paying dividend tax on it.

• Get the latest market updates, ISA news and pension insights by email

So, for example, someone with little or no income from earnings, pensions or other non-savings sources could potentially combine their £12,570 Personal Allowance, £5,000 starting rate for savings, £1,000 Personal Savings Allowance and £500 Dividend Allowance to receive £19,070 without owing UK income tax.

These rules could potentially be useful for retirees who are trying to keep their tax bill as low as possible.

You could actually receive even more than £19,070 and still not owe any tax. For example, withdrawals from an ISA are free of UK income tax. You may also be able to make use of your capital gains tax annual exemption and, if you are accessing a pension, take some of your pension as tax-free cash.

• Watch: How to generate a retirement income of £50k and pay no tax

However, it’s important to distinguish tax-free pension cash from taxable pension withdrawals. The latter count as non-savings income and could reduce the amount of starting rate for savings available to you.

If you’re unsure of your tax position, it would be a good idea to seek professional advice.

Get personalised advice on savings, investing, retirement or pensions from Fidelity’s financial advisory service

• Read: I’m 53. How do I know when to retire?
• Read: Am I saving enough? This one graph will tell you
• Read: Should I retire with a mortgage?

Important information - investors should note that the views expressed may no longer be current and may have already been acted upon. Tax treatment depends on individual circumstances and all tax rules may change in the future. Withdrawals from a pension product will not be possible until you reach age 55 (57 from 2028). This information is not a personal recommendation for any particular investment. If you are unsure about the suitability of an investment you should speak to one of Fidelity’s advisers or an authorised financial adviser of your choice.