Understanding UK taxation of grants and fellowships for individuals

About this article

This article provides an overview of factors that affect UK taxation of grants and fellowships received by individuals in the UK. It is intended to help grant recipients understand what questions to ask and where to seek additional guidance.

Overview

Unfortunately, there's no simple yes-or-no answer to whether grants are taxable in the UK. The tax treatment depends entirely on how the grant is structured and what obligations come with it. Understanding these factors can help you assess your situation and know what questions to ask a tax professional.

Key factors that determine tax treatment

HMRC considers several factors when determining whether a grant or fellowship is taxable income.

Full-time student status

If you're receiving full-time instruction at a university, college, or similar educational establishment, scholarships and similar payments are generally exempt from income tax under Section 776 of the Income Tax (Trading and Other Income) Act 2005.

The key requirement is that you must be engaged in full-time education. This exemption typically covers traditional academic scholarships and student maintenance grants.

Services and deliverables

One of the most important factors is whether you're required to provide services or produce specific deliverables in exchange for the grant.

Grants that require services or deliverables are more likely to be taxable. This includes situations where you must:

• Conduct research for the funder's benefit
• Produce reports, articles, or publications
• Provide teaching or consulting services
• Complete specific work projects

Even minimal service requirements (such as submitting a final report) can affect the tax treatment. If the grant is payment for services you're providing, it's more likely to be considered taxable income.

Grants for pure education, training, or professional development with no service obligations are more likely to be tax-exempt. These are typically structured as support for your learning rather than payment for work.

Employment vs. training relationship

The nature of your relationship with the grant provider matters significantly.

If you have a contract of employment, payments are taxable as employment income. Employment relationships typically involve:

• Regular working hours or duties
• Supervision and direction from the funder
• Ongoing obligations beyond your studies or research

If you have a contract of training, payments may be exempt from tax. Training contracts focus on your development and learning rather than work you're performing for the funder.

HMRC looks at the substance of the arrangement, not just what it's called in the documentation.

Type of grant

Different types of grants are treated differently:

Research grants and fellowships may be taxable depending on:

• Whether you have an existing profession to which the grant relates
• Whether the research provides services to the funder
• Whether you're considered to have a "vocation as a researcher"

Career transition and professional development grants may be taxable or exempt depending on their structure and whether they require services in return.

Miscellaneous income

If your grant doesn't fit clearly into the categories above, it may be taxable as miscellaneous income. This is a "sweep-up" provision that taxes income not covered by other specific tax rules. A tax professional can help you determine if this applies to your situation.

Finding definitive answers

To determine your specific tax obligations:

1. Review your grant documentation carefully. Look for language about services, deliverables, employment relationships, and the grant's purpose.

2. Consult HMRC guidance. Review detailed guidance on research grants and fellowships, scholarship income, and miscellaneous awards.

3. Speak with a qualified tax professional. Given the complexity and fact-specific nature of these determinations, professional advice is strongly recommended.

4. Consider self-assessment requirements. If your grant is taxable, you may need to report it through self-assessment. A tax professional can advise on filing requirements and timelines.