HMRC has confirmed six rules that allow individuals to boost their tax-free allowance above the current £12,570 personal allowance, which is frozen until at least April 2030 under the Labour government. Those with adjusted net income over £100,000 see their allowance reduced by £1 for every £2 over that threshold, and anyone earning £125,140 or more loses the allowance entirely. Additionally, self-employed individuals do not pay Class 2 or Class 4 National Insurance contributions until profits exceed £12,570.
Marriage Allowance
Laura Suter, personal finance expert at AJ Bell, explains: “The marriage allowance is a great way to claim some money back if one half of the couple earns less than £50,270 a year and the other either earns less than £12,570 or doesn’t earn any money at all. The government lets those who are married or in a civil partnership share their tax-free earnings allowance each year. It means that if one of you hasn’t used up your personal allowance of £12,570 a year you can hand it over to your partner.” This can save up to £252 in the current tax year. Around two million couples are eligible but not claiming this break, including those where one partner is retired.
Dividend Income
Tax-free dividend income is now capped at £500. Basic-rate taxpayers pay 10.75% on dividends above this amount, higher-rate taxpayers pay 35.75%, and additional-rate taxpayers pay 39.35%. If your total income is below the personal allowance, you pay no tax on dividends even if they exceed £500.
Rent-a-Room Scheme
Ms Suter notes: “You can make up to £7,500 a year tax-free through rent-a-room relief, which will save you up to £1,500 a year as a basic-rate taxpayer or £3,000 a year if you pay income tax at 40%. You must be renting out a room (or multiple rooms) in your home, rather than a separate flat, and the room must be furnished. You can also use it if you run a B&B or guest house in the same property you live in. You don’t even need to own the home; you could be renting out part of your rental property, provided your lease allows it.”
Driveway Rental
Renting out your driveway can earn up to £1,000 tax-free. Money Saving Expert, founded by Martin Lewis, states: “Depending on your area, you could net up to £200/month (more in some places, eg, parts of London) just for letting somebody park in your drive or garage. The most covetable spaces tend to be in city centres, but you can still make serious cash elsewhere. If you live by a big transport link such as an airport or railway station, or even a football ground, it's worth a quick valuation.”
Capital Gains Tax Allowance
The tax-free Capital Gains Tax allowance is now £3,000.
Tax-Free Allowance for Savings
Ms Suter explains: “Anyone with income of £12,570 or less gets a £5,000 tax-free allowance for their savings income. Called the ‘starting rate for savers’, it means that you don’t pay any tax on the interest on your savings up to £5,000. Based on the current top easy-access account savings rate of 5%, that means you could have up to £100,000 in savings before you’d be hit with the tax. If you were taxed on that £5,000 of savings income it would equate to £1,000 of tax for a basic-rate taxpayer – so it’s a very generous tax saving. Even if you earn between £12,570 and £17,570 you could still benefit, but on a smaller amount. For every £1 of income you earn over £12,570 you lose £1 of the savings interest tax-free allowance. For example, someone who earns £1,000 over the limit will be able to earn £4,000 of savings interest free of tax. This trick is particularly handy for couples where one has a low income but as a household they have a decent amount in savings. If you transfer the bulk of the savings to the lower-earning half of the couple you can maximise the tax-free limit. Retiree couples could also find it handy, as if one of them is just reliant on the state pension they will be within the earnings limit and often retirees have large cash savings pots to live off during retirement.”
