PAYING your taxes is essential – but there are a few ways to earn up to £46,630 extra a year without giving a penny to the taxman.
By making money from hobbies or renting out a driveway, you can reduce your tax burden and keep hold of your hard-earned cash.
This is because of tax-free allowances attached to these types of income, which you can take advantage of each year.
The current tax year is set to end on April 6, so it's best to make the most of them now before you lose this year's allowances for good.
Sarah Coles, personal finance analyst at Hargreaves Lansdown said: "The government is keener than ever to get its hands on our cash.
"Frozen tax thresholds mean pay rises will push us into paying more tax on our incomes, and to add insult to injury, cuts to some tax allowances will hike taxes even further.
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"It means we need to take advantage of all the tax breaks we can.
"Fortunately, there are more than you think, and they could save you hundreds, or even thousands of pounds."
We asked Sarah for her top tips and below are nine ways you could earn a tax-free income.
Personal allowance – £12,570
The personal allowance is the amount you can earn tax-free each year.
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In the current tax year, which runs from April 5, 2022 to April, 6, 2023, that amount is £12,570.
That will stay the same each year for some time as it's frozen at this rate until April 2028.
This allowance means if you earn £12,570 or less, you pay no income tax.
For anyone earning more there's good news too – you pay no tax on that amount either
You only pay tax on income over that amount.
If you earn £50,270 or less, you’ll pay basic rate tax on the rest of your earnings.
On any earnings over that amount you’ll pay higher rate tax on the chunk over this threshold.
The basic rate of tax is 20% and higher rate 40%, while additional rate taxpayers pay 45%.
But that's on very high earnings of over £150,000, though that is set to reduce to £125,140 from April.
Those earning over £100,000 also start to lose £1 of their personal allowance for every £2 earned until it reduces to zero at around £125,000.
You can calculate what your take home pay is depending on your salary by using the handy tool on the government's website: www.tax.service.gov.uk/estimate-paye-take-home-pay/your-pay.
Marriage Allowance – £1,260
Marriage Allowance lets you transfer £1,260 of your personal allowance to your husband, wife or civil partner.
It applies to couples where one of partner is a non-taxpayer (earning less than £12,570) and the other is a basic-rate tax payer (earning less than £50,270).
This means the higher earner can keep more of their salary before paying income tax, boosting their yearly earnings of £252 in real terms.
However, you can also backdate the claim by up to four years, meaning you could get a £1,260 payout if you qualify for all years.
You can only apply if you are the non-taxpayer – or lower earner – in the relationship.
And you can't claim marriage allowance if you’re living together but you’re not married or in a civil partnership.
You can check if you qualify using the government's eligibility checker at: www.tax.service.gov.uk/marriage-allowance-application/eligibility-check.
Rent out a room – £7,500 a year
If you rent out a furnished room of your home to a lodger through the government's Rent a Room Scheme, the first £7,500 of rent each year is tax-free.
However, this is halved if you share the income with your partner or someone else in the household.
The tax exemption is automatic if you earn less than the threshold, meaning you don't need to do anything.
If you earn more than this for renting out a room you must complete a self-assessment tax return.
You'll need to pay tax on what you make over this, but you'll still get the tax-free allowance.
Rent out part of your home – £1,000 a year
Another way to make tax-free income from your home is by renting out storage space or a driveway.
You can earn £1,000 a year without an extra tax bill.
Sarah said: "The government lets you make £1,000 from your property before you have to worry about tax.
It does mean that if you make any other money from your property – and it comes to more than £1,000 – you’ll have to pay tax on the rest."
Plus you'll have to fill in a self-assessment tax return.
You can use a price guide tool by Park Let to get an idea of how much your parking space or garage is worth.
We spoke to one savvy saver who managed to make £400 by renting out his parking space.
Make cash from a hobby – £1,000 a year
Turning your hobby into a side hustle alongside your regular job can boost your tax-free income too.
You can earn up to £1,000 without paying tax thanks to the trading allowance.
The hobby could be gardening or babysitting, just to mention two examples.
The trading allowance is available even if you have only traded for part of the tax year.
For example, if you started to trade in February 2021, you would still be able to claim the full amount of the trading allowance before April 5, 2021.
If you earn more than £1,000 a year, you need to complete a self-assessment tax return.
Earn savings interest – up to £1,000 a year
Most people get something called the personal savings allowance, which lets you earn a chunk of interest before paying tax.
Basic rate taxpayers get £1,000 and higher rate taxpayers get £500.
Sarah said: "When interest rates were at rock bottom it meant most people didn’t earn anything like enough on their savings to worry about tax.
"But now rates have risen, it’s worth considering how much you’re likely to make, and whether you need to consider an ISA for more of your savings."
Savers can stash up to £20,000 each tax year in a type of saving account called an Isa (individual savings account), and any interest or investment gains you make are tax-free, year after year.
There are different types of Isa, including cash and stocks and shares, plus more specialist ones, like if you're buying a house.
For example, lifetime Isas can be opened by anyone aged 18 to 39, and you can put £4,000 a year into these accounts.
Best of all, any money you save gets 25% top-up from the Government, so if you max out your allowance, you'll get a £1,000 bonus.
There is a catch though – you can only use the money in the account either to put towards buying your first home, or when you reach the age of 60.
If you access the cash at any other time, you'll pay a penalty that means you don’t just give up the penalty – you’ll lose some of your own money too.
However, the generous government top-up means it's a great option for first-time buyers and some people saving for the future.
Get the starting savings rate – £5,000
Households on a low income aren’t charged tax on the first £5,000 of interest they get from savings, Sarah said.
This called the starting rate for savings. However, this is reduced by £1 for every £1 you earn over the personal allowance.
It means you’re typically not eligible for the starting rate for savings if your other income is £17,570 or more.
Earn dividend income – £2,000 (for now)
People who own their own business and pay themselves in dividends, and investors holding shares outside an ISA can earn dividend income of up to £2,000 in the current tax year without paying tax.
But Sarah said there's some bad news on the way.
She told The Sun: "This allowance is getting slashed to £1,000 in April and £500 the following April, which is going to mean a higher tax bill."
How much tax you pay on dividends above the allowance depends on your earnings.
Basic-rate taxpayers pay 8.75% above the allowance, compared to 33.75% for higher rate payers and 39.35% for those on the additional rate.
Sarah added: "If you were to get £3,000 in dividends and earn £29,570 in wages in the 2022 to 2023 tax year, your total tax bill would be £3,487.50 – £87.50 of which would be tax on dividends.
"In the next tax year, the tax on dividends would rise to £175, and the year after it would rise to £218.75.
"You can protect yourself from tax on dividends from investments, by holding them in an ISA, so however much you make there would be no tax to pay."
Capital gains allowance – £12,300 (for now)
You pay capital gains tax (CGT) on profits when you sell something that has gone up in value, such as stocks and shares held outside an ISA, artwork or a second home.
However, you get a tax-free allowance each year, and you only have to pay tax on any profits above that amount.
The tax-free allowance is currently £12,300 for individuals this year and at £6,150 for trusts.
If you exceed the allowance, the amount of tax you’ll pay depends on your income tax band and what you’ve sold.
Sarah said: "There’s more bad news coming here too, because the CGT allowance is falling to £6,000 in April, and £3,000 the year after that, which will significantly impact your tax bill."
Basic-rate taxpayers pay 10% on assets and 18% on property, while higher- and additional-rate taxpayers pay 20% on assets and 28% on property.
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