Taxation is a part of life, and navigating the complexities of the UK tax system can seem daunting. However, by taking advantage of certain tax allowances, you could potentially increase your income by as much as £16,000 annually. In this article, we will explore five legitimate tax breaks that can benefit families and individuals alike.
Marriage Allowance – £1,260
If you are married or in a civil partnership, the Marriage Allowance offers a way to boost your income. The lower-earning partner can transfer £1,260 of their personal allowance to the higher-earning partner, provided the latter is a basic-rate taxpayer. This transfer results in a tax credit equal to the amount transferred. To qualify, the lower earner must make less than £12,570, with the higher earner earning no more than £50,270 (or £43,662 in Scotland). This allowance is automatically transferred each year but can be canceled if needed.
Trading Allowance – £1,000
The Trading Allowance permits you to earn up to £1,000 each year without paying tax or national insurance contributions. This allowance isn’t exclusive to the self-employed; it also benefits sole traders and individuals who earn income from occasional services like repair work, gardening, babysitting, or equipment rental. Keep in mind that if your earnings exceed £1,000, you must declare them to HMRC and complete self-assessments.
Rent-a-Room Scheme – £7,500
The Rent-a-Room Scheme allows you to earn up to £7,500 annually tax-free by renting out a spare room in your home. If you share income with someone else, the limit is £3,750 each. Whether you own or rent your home, you can participate, provided your lease permits it. To qualify, your income from room rental, before expenses, should not exceed £7,500 in the tax year, and it must come from one source. The accommodation must be in your main residence, and without this relief, your income would be taxable.
Tax-Free Childcare – £2,000
Parents can save on childcare costs through the Government’s Tax-Free Childcare scheme. You pay for childcare into an online account, and the government adds extra funds to it. For every £8 you contribute, the government adds £2, with a maximum of £2,000 per child per year (rising to £4,000 for disabled children). This money must be spent on registered childcare providers, including nurseries, nannies, and after-school clubs. To qualify, you and your partner (if applicable) must earn at least the minimum wage for 16 hours a week and have a combined income below £100,000. Each child can have only one account.
Starter Rate for Savings Allowance – £5,000
The Starter Rate for Savings allowance allows lower earners to receive interest from savings tax-free. To qualify, your non-savings income must fall between £12,570 and £17,570. The maximum allowance is £5,000 per tax year, and it decreases by £1 for every £1 of income above the personal allowance, up to the £17,570 threshold. For example, if your other income is £15,000, your starter rate would be £2,430. This means you can earn up to £2,430 in interest before paying tax. Common sources of interest covered by this allowance include bank accounts, building society accounts, and credit union accounts.
Navigating the UK tax system doesn’t have to be overwhelming. By exploring these tax breaks, you can potentially increase your annual income significantly. Remember that these allowances are designed to help ordinary households, so take advantage of them and keep more money in your pocket. It’s your money, after all!