With frozen tax thresholds pulling more people into higher tax brackets, a financial expert has revealed five simple strategies that could collectively boost a household's income by over £16,000 without incurring any tax liability.
Laura Suter, from the investment platform AJ Bell, provided these insights to the Money blog, highlighting that many of these methods are underused. She stated, "More people are being dragged into paying higher levels of tax... But at the same time, many households are overlooking completely legitimate ways to earn tax-free income."
Five Key Tax-Free Allowances
Here is a detailed breakdown of the five tax-efficient strategies that could significantly improve your financial situation.
1. Marriage Allowance: Save £252
If one partner earns between £12,570 and £50,270 and the other earns less than the £12,570 personal allowance, they can transfer up to £1,260 of their unused allowance. This can reduce the couple's annual tax bill by £252. Shockingly, around two million eligible couples are not currently claiming this benefit.
2. Trading Allowance: Earn £1,000 from Side Hustles
Every individual in the UK can earn up to £1,000 per year tax-free from side hustles or casual work. This covers activities like babysitting, selling goods online, or renting out a driveway. For a basic-rate taxpayer, this represents a saving of up to £200.
3. Rent-a-Room Scheme: Generate £7,500
Homeowners can take advantage of the rent-a-room scheme, which allows them to earn £7,500 per year tax-free by letting out furnished accommodation in their main residence. This can save a basic-rate taxpayer up to £1,500 annually.
4. Tax-Free Childcare: Claim Up to £2,000
Many parents are unaware of the Tax-Free Childcare scheme, which is separate from the 30-hour free childcare offer. For every £8 paid into a registered childcare account, the government adds £2, up to £2,000 per child each year. An estimated 800,000 eligible families are not using this valuable benefit.
5. The £5,000 Savings Allowance for Low Earners
Individuals with a total income of £12,570 or less benefit from a £5,000 tax-free allowance on savings interest. This 'starting rate for savers' can be maximised by couples if savings are held in the name of the lower-earning partner.
By understanding and utilising these five legitimate tax breaks, UK families can legally retain more of their hard-earned money and ease the pressure on their household budgets.
