It is intriguing to know that with a little careful planning it is possible to earn £37,370 tax free each year. This is because of the tax-free allowances attached to certain types of income. So what better way to start a new year tax year, than with a little tax efficiency planning.
The personal allowance is the amount you can earn tax-free each year. In the current tax year running from 6th April 2021 to 5th April 2022, the personal allowance is £12,570 and it will stay at this rate until April 2026. Any income up to this amount is tax free.
Renting a room
If you rent out a furnished room of your home through the government’s Rent a Room Scheme, the first £7,500 of rent each year is tax-free.
Rent out a driveway
For those living near a main line station or in a town centre, you can also rent out your driveway and if you choose to do so, the first £1,000 will be tax free.
There are a number of hobbies that come with a trading allowance that allow you to earn £1,000 year tax free. Hobbies that are eligible include gardening and babysitting.
Basic rate taxpayers can also earn £1,000 in interest a year tax-free by way of any savings account.
ISAs are also a great way to save tax efficiently and you can earn interest tax-free whilst the money is in the ISA account. The current maximum amount you can put in an ISA for the 2021/22 tax year is £20,000. Unlimited funds can be withdrawn from your ISA tax free.
The dividend allowance for 2021/22 is £2,000 meaning the first £2,000 of your dividends are tax free. Over and above this £2,000, if you have any un-used personal allowance (£12,570), that element is tax free.
Whilst strictly speaking not income, realising capital gains of £12,300 or below selling stocks and shares or collective investments, provides tax free proceeds due to using your annual capital gains tax exemption.
So with a little tax planning, you can earn £37,370 tax free each year.
If you’d like to know more about tax planning, or tax efficient investing, please get in touch.