How to earn up to £43,590 without paying tax

PAYING tax is important – but there are ways to earn up to £43,590 extra this year without giving a penny to HMRC.

By making money from hobbies or renting out a driveway, you can reduce your tax burden and keep hold of more of your hard-earned cash.

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This is because of the tax-free allowances attached to these types of income, which you can take advantage of each year.

Meanwhile, the new tax year started today, April 6, and it comes with an increase to some allowances too, meaning you can earn even more tax-free.

The income tax thresholds will then be frozen until 2026, Chancellor Rishi Sunak announced in the Budget on March 3.

Below we explain how to reduce your tax burden.

Personal allowance – £12,570

The personal allowance is the amount you can earn tax-free each year.

In the current tax year running from April 6, 2021, to April 5, 2022, the standard amount is £12,570 – up from £12,500 in the previous tax year.

It will then stay at that rate until April 2026.

For basic rate taxpayers, the threshold will be held at £12,570 and £50,270 for higher rate tax payers.

Basic rate tax payers pay 20% on earnings over the lower threshold, while higher rate payers are charged 40% above the top threshold.

If you earn £12,570 or less, you currently pay no income tax.

Meanwhile, Brits who earn over £125,140 a year don’t get any personal allowance and will pay income tax on everything they earn.

You can calculate what your take home pay is depending on your salary by using MoneySavingExpert’s free online calculator.

Marriage allowance – £1,220

If you’re married or part of a civil partnership, you may be eligible for a tax break known as the marriage allowance.

This applies to couples where one of you is a non-taxpayer (earning less than £12,570) and the other is a basic-rate tax payer (earning less than £50,270).

It allows you to transfer £1,260 of your personal allowance (the amount you can earn tax-free each tax year) between you to cut your yearly tax bill.

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 £1,220 payout.

You can only apply if you are the non-taxpayer – or lower earner – in the relationship.

You need to fill out a form on the Gov.uk website and you’ll need your national insurance numbers and a form of ID for the non-taxpayer.

Any backdated money owed to you will be calculated automatically and sent to you as a cheque.

Rent out a room – £7,500

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.

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 you must complete a self-assessment tax return.

You can then opt into the scheme and claim your tax-free allowance.

Rent out a driveway – £1,000

Another way to make tax-free income from your home is by renting out storage space or a driveway.

This will let you earn up to £1,000 a year without paying any tax.

Depending on where you live, you could net up to £200 a month by renting out your driveway to motorists.

In fact, homeowners made £21million in 2020 by renting out their driveway, according to research by YourParkingSpace.co.uk.

Of course, some homeowners may not want to do this now during lockdown, but it could be worth looking into as restrictions are eased.

You can use the price guide tool by Park Let to get an idea of how much your parking space or garage is worth.

Make cash from a hobby – £1,000

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 full trading allowance is available even if you have only traded for part of the tax year.

If you earn more than £1,000 a year, you need to complete a self-assessment tax return.

Earn savings interest – £1,000

In April 2016, the government introduced a big shake-up to the Personal Savings Allowance (PSA).

Under the scheme, basic rate taxpayers can earn £1,000 in interest a year tax-free – in whatever account they’re saving in.

While if you’re a higher-rate taxpayer you earn up to £500 tax-free.

At the time, the government estimated the change meant that around 95% of adults no longer pay any tax on their savings.

Alternatively, savings kept in an Isa will continue to earn interest tax-free until the money is withdrawn from the account.

The maximum amount you can put away for the 2021/22 tax year in an Isa is £20,000.

Get the starting savings rate – £5,000

Households on a low income are charged 0% income tax on their savings – this is called the starting rate.

The starting rate for savings is currently £5,000 per tax year, meaning you don’t pay any interest on amounts below this.

The starting rate for savings 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.

However, if you’re claiming the Blind Person’s Allowance, you can earn more than £20,000 and still be eligible for the starting rate.

Earn dividend income – £2,000

Savers can earn dividend income of up to £2,000 a year without paying tax.

You may get a dividend payment if you own shares in a company.

How much tax you pay on dividends above the allowance depends on your earnings.

Basic-rate taxpayers pay 7.5% above the allowance, compared to 32.5% for higher rate payers and 38.1% for those on the additional rate.

If you earn up to £10,000 in dividend income a year, you need to ask HMRC to change your tax code to deduct tax from your wages.

Alternatively, you can fill in a self-assessment tax return.

Capital gains allowance – £12,300

You pay capital gains tax (CGT) on profits when you sell something that has gone up in value, such as stocks and shares, 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 has remained at £12,300 for individuals this year and at £6,150 for trusts.

It comes after Mr Sunak ordered a review to help plug the hole in public finances following the coronavirus crisis.

If you exceed the allowance, the amount of tax you’ll pay depends on your income tax band and what you’ve sold.

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.

If you make a loss on any of the things, these can be offset against your profits to reduce your tax bill.

We explain how the income tax threshold freeze will affect your wages and take home pay.

Meanwhile, thousands of parents will lose some or all of their child benefit payments under a stealth tax.

It’s important to check your tax code is correct as it could save you money.

This post first appeared on thesun.co.uk