Five tax hacks which could help boost your income by up to £16,000 a year

02 September 2023 , 06:00

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There are several "tax hacks" you can use to help boost your income (Image: Getty Images)

Brits could boost their income by up to £16,000 each year by taking advantage of these tax breaks.

Tax is something we all have to pay. The UK tax system is very big and can often be a tad complicated, which means most people don't often think about it after seeing how much income tax has been deducted from their payslips.

Laura Suter, head of personal finance at broker AJ Bell, says many are missing out on "entirely legitimate" ways to bring in some extra income. She highlights five tax allowances that all families and households should look into to see if they can save some money.

She said: "These five tax hacks can be used by normal households – you don’t need to be earning hundreds of thousands of pounds and employing an accountant to take advantage. Nor is there any need to feel like you’re doing something underhand or not paying the tax you owe, because these tax breaks are deliberately designed by HMRC to help people boost their income."

Marriage allowance - £1,260

Marriage allowance is a tax perk available to couples who are married or in a civil partnership, where the lower earner in the relationship can transfer £1,260 of their personal allowance to their partner.

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The higher-earner - who must be a basic-rate taxpayer - will then receive a tax credit equivalent to the amount of personal allowance that has been transferred to them. To be eligible, the lower earner must earn less than £12,570 with the higher earner not earning more than £50,270. If you live in Scotland, the 20% taxpayer will normally earn under £43,662.

You should be aware that this allowance will transfer to the spouse automatically every year unless you contact HMRC to cancel it, or your marriage comes to an end

Trading allowance - £1,000

Trading Allowance lets you make up to £1,000 a year without having to pay tax or national insurance contributions on it. A common misconception is that only those who are self employed benefit from this relief however that is not true.

It can benefit sole traders and self-employed people, as well as those who make a small amount of income from, for example, casual repair or maintenance work here and there, occasional paid gardening work, babysitting, tutoring, or hiring out equipment or tools, etc.

With more and more Brits taking on side hustles, this allowance is something everyone should be aware of. However, you must remember that if you earn over £1,000, you will need to declare your earnings to HMRC and complete self-assessments each applicable tax year.

Rent-a-room scheme - £7,500

The Rent a Room Scheme lets you earn up to a threshold of £7,500 per year tax-free from letting out your spare room in your home but if you share income from the property with someone else, you can only claim up to £3,750 each.

You also don’t have to be a homeowner to take advantage of the scheme. If you’re renting you can also let out a room to a lodger, as long as your own lease allows you to do so.

According to the Low Income Tax Reform Group (LITRG), you can qualify for the relief if your income from renting out your room, before expenses, does not exceed £7,500 in the tax year and the money you make comes from one place.

The following conditions must also be met:

The income comes from letting out "furnished accommodation" from a home in the UK or from "associated goods and services" linked to letting such as providing meals, cleaning or laundry services
The furnished accommodation is in your only or main residence
If it were not for the rent-a-room relief,
The money you make would be taxable, either as trading, property or miscellaneous if the rent-a-room relief was not there

Tax free childcare - £2,000

You can save money on childcare by using the Government's tax-free childcare scheme. This allows parents to pay for childcare into an online account, and the Government will then add extra to top it up.

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For every £8 you pay, the Government will automatically add in £2 to put toward your childcare costs. If you’re eligible, you can get up to £500 every three months - up to £2,000 a year - for each of your children. For disabled children, the maximum amount you could get rises to £4,000.

This money must then be spent on a registered childcare provider, such as nurseries, nannies, after-school clubs and play schemes.

Under the current rules, you need to be earning at least the minimum wage, for the equivalent of 16 hours a week - the same goes for your partner if you have one. Both you and your partner will also have to earn less than £100,000 a year to qualify for the scheme, and you cannot have two accounts for the same child.

Starter Rate for Savings Allowance - £5,000

The Starter Rate for Savings allowance gives lower earners the benefit of not paying tax on some or all of their interest from savings. To be eligible for it, your income - that is not from savings - must be between the personal allowance of £12,570 and £17,570.

The allowance is worth a maximum of £5000 per tax year meaning you can save up to £5,000 every year without having to pay tax on the interest. However, you should be aware that the starter rate decreases in value by £1 for every £1 of income received over the personal allowance up to the £17,570 threshold.

So, if your other income was £15,000 you will need to minus the personal allowance from your income total to give your starter rate for savings allowance. In this instance, the calculation would be 15,000 - 12,570 = 2430. This would mean you would have a £2,430 starter rate for your savings allowance and would be able to make this amount of interest before paying tax.

Not all interest is covered by this Starter Rate but some of the most common sources of interest covered includes: