With the UK economy going through an unstable spell, and the associated cost-of-living crisis taking its toll, it’s a time to be particularly efficient with financial management. One aspect of this is maximising your tax-free income.
Many are guilty of not exploring where money can be made without HMRC taking a cut, and the opportunities can provide a very healthy boost to the personal-finance bottom line. Below are some of the income-optimising opportunities you could take advantage of before the new tax year, commencing April 2023.
One example is the trading allowance. Most people are aware of the Personal Allowance when it comes to earnings - currently fixed at £12,570 - but the trading allowance dictates that the first £1,000 of income specifically from self-employment is tax-free (too).
In addition, the first £1,000 from property being rented out is also not subject to tax, and this stretches to £7,500 if the property is a person’s own home - renting to a lodger - and qualifies for the Rent a Room Scheme.
Savers - and we should all aspire to identify as such, especially as interest rates rise - have good news as well, with Individual Savings Accounts (ISAs) offering entirely tax-free interest on up to £20,000 per year, and National Savings Certificates also boasting exemption from tax.
For some, company shares will provide a dividend allowance of £2,000, though this does require you to have a registered company in the first place.
Even beyond all the above qualifiers for tax-free incomings, those who are married, or part of a civil partnership may also be eligible for the Marriage Allowance tax break. This dictates that when one member of a couple described is classed as a non-taxpayer - i.e., they do not earn more than £12,570 - and the other is a basic-rate taxpayer, meaning they earn between £12,571 and £50,270, the former can transfer (up to) £1,260 of their Personal Allowance to the latter.
This translates to the higher earner increasing their yearly take-home pay by £252, but it gets even better: this entitlement, should it be news to anyone, can be backdated to up to four years, meaning a very nice bonus of £1,220 could wing its way to a lot of households.
Rent a Room Scheme
This one is great if you have a spare room that could be rented out. You are allowed to earn up to £7,500 tax-free from letting out furnished accommodation in your home. You do not need to do anything if your income totals less than £7,500. If you earn more than this, you must complete a tax return.
As is always the case with personal finance, a little investigation into entitlement can do the bank balance a lot of good. The greater our income, the more the state will take from us on paper, and this will be in pounds and pence and proportion too. Finding out what we’re within our rights to keep the totality of is crucial - and the information’s out there, even if the Chancellor of the Exchequer isn’t shouting it from the rooftop of 11 Downing Street!