Five Little-Known Allowances Could Bring in £16,000 Tax-Free Income
As tax rates rise for many UK households, discovering legitimate ways to protect your earnings has become increasingly important. While frozen allowances have pushed more people into higher tax bands, there are several often-overlooked allowances that can help you keep more of your money, legally and easily. Experts from investment platform AJ Bell have highlighted five such allowances that could collectively shield up to £16,000 of your income from taxation.
1. Marriage Allowance – Up to £1,260 Tax-Free Income
If you and your partner meet specific earnings criteria, you might be eligible for the marriage allowance, which allows the lower-earning spouse to transfer some of their unused personal allowance to the other. This is available if one partner earns between £12,570 and £50,270 annually, and the other has an income below the personal allowance threshold of £12,570. By transferring up to £1,260 of unused personal allowance, the higher-earning partner’s tax-free threshold rises from £12,570 to £13,830. This can reduce the couple’s combined tax bill by up to £252 a year. Despite two million couples qualifying, many do not claim this valuable tax break, including retired partners. It’s worth checking eligibility through the official government calculator, but be wary of scam sites posing as government portals.
2. Trading Allowance – £1,000 Tax-Free Earnings from Side Hustles
You can earn up to £1,000 tax-free from any side business or casual earnings without the need to declare them to HMRC. This allowance applies to various activities, such as babysitting, selling homemade goods online, dog walking, or renting out your driveway.
Basic-rate taxpayers save up to £200 a year here, while higher-rate taxpayers can save up to £400. Keeping clear records of any income earned is essential in case the tax authorities request proof.
3. Rent-a-Room Scheme – £7,500 Tax-Free Rental Income
Homeowners renting out a furnished room in their home may earn up to £7,500 per year tax-free under the government’s rent-a-room scheme. This is a popular option to offset increasing mortgage or household costs.
The relief applies when renting out rooms within your main residence—not a separate flat—and includes running a B&B or guest house on the premises. The tax saving is up to £1,500 a year for basic-rate taxpayers and £3,000 for higher-rate taxpayers. If the property is jointly owned and income split, each owner gets half the allowance.
4. Tax-Free Childcare Scheme – Up to £2,000 per Child
Many eligible families miss out on up to £2,000 per child per year through the government’s tax-free childcare scheme, separate from the 30-hour childcare offer introduced recently. Parents register for a dedicated government account, into which they pay money used to cover childcare costs for children up to age 11. For every £8 contributed, the government tops up with £2, up to £2,000 annually. Families with children who have disabilities may receive up to £4,000. Parents must work at least 16 hours per week and earn less than £100,000 annually to qualify. Those on Universal Credit or already receiving childcare vouchers are not eligible.
5. Starting Rate for Savings – Up to £5,000 Tax-Free Interest
If your income is £12,570 or below, you qualify for a personal savings allowance where the first £5,000 of savings interest is tax-free. Even if your income is slightly higher, between £12,570 and £17,570, you may still benefit on a reduced scale—losing £1 of the allowance for every £1 over the threshold.
This allowance is particularly useful for couples where one partner has a low income but the household has significant savings. Transferring savings into the name of the lower earner can maximize tax-free savings income.
A Valuable Reminder
Simple awareness and strategic use of these allowances could mean keeping thousands of pounds out of the taxman’s reach—boosting your effective take-home pay. As Laura Suter from AJ Bell remarks, “A little bit of knowledge about how the tax system works can go a long way.”
To check your eligibility and make the most of these tax breaks, always rely on official government websites or trusted financial advisors to avoid fraud and scams.
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