A TAX expert has revealed how you could boost your income by as much as £10,000 a year through little-known tax breaks.
Millions of households aren't claiming tax allowances that could save them thousands of pounds a year – but it takes just minutes to apply.
Here, Laura Suter, head of personal finance at broker AJ Bell, explains five tax allowances that all families can use to save cash.
Marriage allowance – up to £1,260
Around two million married couples and people in civil partnerships currently save money with the marriage allowance, according to HMRC.
But another two million couples are estimated to be missing out on the tax break, which is worth £252 a year.
The allowance lets couples claim money back where one half earns less than £50,270 a year and the other earns less than £12,570, or doesn’t earn any money at all.
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Ms Suter explained: “The government lets those who are married or in a civil partnerships share their tax-free earnings allowance each year.
"It means that if one of you hasn’t used up your Personal Allowance – currently £12,570 a year – you can hand some of it over to the other, which could save them up to £252 in the current tax year."
Even better, you can backdate any claims for up to four years if you were eligible previously – a total saving of £1,260.
You can claim the marriage allowance online directly through the government website.
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You’ll just need both your National Insurance numbers, plus some forms of ID.
Be wary of scam web pages that are mocked up to look like the government website before handing over personal details.
Trading allowance – up to £400
Anyone can earn up to £1,000 tax-free from side hustles or money-making endeavors that are separate from their main job.
The so-called ‘trading allowance’ means that if you earn £1,000 from property or trading income, you won't be taxed on it.
If you’re a basic-rate taxpayer this will save you up to £200 a year, or £400 a year for a higher-rate taxpayer.
Ms Suter said: "It’s great for people doing a bit of work on the side such as babysitting, selling items, renting out their driveway, dog-walking or even selling jam at their local market.
"And the good news is that if you earn less than £1,000 a year from your side hustle then you won’t usually need to fill out a tax return."
However, she said it's important to keep track of any relevant paperwork to prove your income, just in case the tax man asks for it later.
If you earn more than the £1,000 tax break from your side hustle in any tax year, you'll need to fill out a tax return and declare any income over this threshold and pay tax on that.
Rent-a-room scheme – up to £300
The government gives a tax break to anyone who rents a room out in their home for extra income or to help with rent or mortgage costs.
Ms Suter explained: "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%."
To qualify, you must be renting the room out in your main home, rather than a separate flat, and it must be furnished.
You don't need to own the home – you can let out part of your rental property, as long as your lease allows it.
There's also no minimum length of time you need to let it out for to get the tax relief.
"It’s not just limited to a room – you can rent out as much of your home as you like, and you can also use it if you run a B&B or guest house as long as it’s in the same property you live in," Ms Suter added.
“If you earn less than £7,500 a year from renting out a room you won’t need to fill in a tax return, but if you earn more than the tax-free limit you will.”
Tax-free childcare – up to £4,000
Families can claim up to £2,000 for every child under 11 each year to go towards childcare costs.
The allowance is split into £500 payments every quarter.
"For every £8 you pay into the account, the government will add £2. You then pay the nursery directly from the childcare account," Ms Suter explained.
You can claim double this amount – £4,000 per year – if you have a disabled child.
You can also claim tax-free childcare at the same time as claiming the 30-hours of free childcare, assuming you’re eligible for both.
There are a few criteria for parents to be eligible. These are:
- Both parents must be working and must each earn the minimum wage for 16 hours a week
- They must also be earning less than £100,000 each
- The money must be used before September 1 following each child's 11th birthday.
To get tax-free childcare, log into your Government Gateway account and register, and the government will then approve your account.
Tax-free savings allowance – up to £1,000
Anyone with income of £12,750 or less can get an extra £5,000 tax-free allowance for any interest earned on their savings compared to higher earners.
Basic rate taxpayers can earn up to £1,000 in interest on their savings without paying additional tax, reducing to £500 for higher-rate earners and nothing for additional-rate earners.
But those earning below the basic tax threshold of £12,570 can earn up to £5,000 without paying any tax, saving them up to £1,000 in tax.
And if you earn between £12,570 and £17,570, you can still benefit from the savings allowance, but it will be a smaller tax break.
Ms Suter explained: “This trick is particularly handy for couples where one has a low income but they have a decent amount in savings.
"If you were taxed on that £5,000 of savings income it would equate to £1,000 of tax – so it’s a very generous tax saving."
"For every £1 of income you earn over £12,570 you lose £1 of the savings interest tax-free allowance.
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"So for example, someone who earns £1,000 over the limit will be able to earn £4,000 of savings interest tax free."
Ms Suter added: "Retiree couples will also find it handy, as one of them may be reliant on the state pension, but often retirees also have large cash savings pots to live off during retirement."
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