The Personal Allowance, the amount you can earn before paying income tax, has been frozen at £12,570 since 2021 and is not due to rise until 2031. This freeze, known as fiscal drag, pushes more people into paying tax as wages rise with inflation. However, HMRC offers five separate allowances that, when combined, could allow an individual to earn or claim up to £29,330 in a single tax year without paying any tax.
Marriage Allowance: £252 Tax Saving
The Marriage Allowance lets married couples or those in a civil partnership transfer unused Personal Allowance from the lower-earning partner to the higher-earning one. This boosts the recipient's allowance by £1,260, resulting in a tax saving of up to £252 per year. To qualify, the higher earner must have an income between £12,570 and £50,270, and the lower earner must earn less than £12,570 or have no income. According to Laura Suter, personal finance expert at AJ Bell, “It’s thought around two million couples are eligible for this tax break but not claiming it, and even those where one half of the couple is retired can claim the tax break.”
Trading Allowance: £1,000 Tax-Free Income from Side Hustles
The Trading Allowance allows individuals to earn up to £1,000 per tax year from side hustles—such as selling on eBay or Vinted, dog walking, or freelance work—without paying tax or filing a tax return. If earnings exceed £1,000, the allowance still applies, but a tax return must be submitted for the excess. Ms Suter advises, “Just make sure you keep track of any relevant paperwork proving your income in case HMRC asks for it later.”
Rent-a-Room Scheme: Up to £7,500 Tax-Free
The Rent-a-Room scheme lets homeowners or tenants rent out a furnished room in their main home and earn up to £7,500 per year tax-free. For joint owners, the relief is halved to £3,750 each. Ms Suter explains, “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, so long as it’s in the same property you live in.” If rental income exceeds £7,500, a tax return is required.
Tax-Free Childcare: Up to £2,000 per Child
Tax-Free Childcare provides up to £2,000 per year per child (or £4,000 for disabled children) towards childcare costs. The government adds £2 for every £8 paid into a dedicated childcare account. Eligibility requires both parents to be working (each earning at least the minimum wage for 16 hours a week) and earning less than £100,000 adjusted net income per parent. The scheme can be used until 1 September after the child’s 11th birthday (16th for disabled children).
Starting Rate for Savings: £5,000 Tax-Free Interest
The Starting Rate for Savings allows individuals with income of £12,570 or less to earn up to £5,000 in savings interest tax-free. For those earning between £12,570 and £17,570, the allowance reduces by £1 for every £1 over £12,570. Ms Suter notes, “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.” This can be particularly beneficial for low-earning partners or retirees reliant on the state pension.
By combining all five allowances—Marriage Allowance (£252 tax saving, equivalent to £1,260 allowance boost), Trading Allowance (£1,000), Rent-a-Room (£7,500), Tax-Free Childcare (£2,000 per child), and Starting Rate for Savings (£5,000)—a household could theoretically shield up to £29,330 from tax in a single year. However, individual circumstances and eligibility criteria apply.
