Are you looking for a way to make some extra money without having to pay taxes?
Great, you’re in the right place!
Did you know that an average UK household pays £826,030 in taxes over a lifetime? Although taxes have their benefits as they help us to finance essential public services, it’s pretty crazy to think that the amount you pay in taxes could almost make you a millionaire!
Side hustles and freelancing can be great ways to earn some extra cash. However, it’s important to know that many side incomes aren’t exempt from taxes. Having to pay out some of the hard-earned money in taxes can be frustrating. Luckily, there are various ways to earn income without having to pay a single penny in taxes. That said, this article will cover six tips for how to make tax-free money in the UK. Legally, of course.
How much money can I make without paying taxes?
Before we get started, it’s good to understand how much money you can make without having to pay taxes.
First of all, we all have a tax-free personal allowance each tax year in the UK. This is the amount you can legally earn from your employment before paying any income tax on it. For the 2022-2023 tax year this amount is £12,570.
As an employed person, the first £12,570 of your income is tax-free. Everything you earn above that amount, the government is going to take a bite of it. The table below shows the percentage rates of income tax that apply to taxable income in 2022-2023.
|Tax Band name|
|Basic rate tax – The lowest level of Income Tax paid above the Personal Allowance.||20% on income between £12,571 and £50,270 (you pay tax on £37,700)|
|Higher rate tax – The middle tier of Income Tax.||40% on income between £50,271 and £150,000|
|Additional rate tax – The top rate of Income Tax for high earners.||45% on income above £150,000|
Less known ways to make money tax-free
Normally, anything you earn is liable for income tax after the tax-free personal allowance. Fortunately, there are ways you can earn more than this and keep every penny. From making money from your hobby to renting out your spare room, here are some of the allowances and ideas you can use to boost your income.
1. Trading allowance: Cash in with your side hustle or hobby
If you have a side hustle, you’ll be pleased to know that everyone is allowed to earn £1,000 a year from a hobby or side business before having to declare the income to the taxman. This is called a trading allowance. The trading allowance can be used by individuals who make money from the following:
- Casual services such as babysitting, tutoring or dog-walking
- Hiring out personal equipment, for example, power tools or a car
- Selling home-made goods or crafts in online marketplaces such as Etsy or eBay
If starting a side hustle intrigues you and you want additional ideas on how to get started, I’d recommend reading my article 10 Best Side Hustle Ideas to Make Money in 2022.
2. Make most of the £1000 property allowance
The property allowance is a tax exemption of up to £1,000 a year for individuals with income from land or property.
This can of course be helpful for Buy to-let landlords and second property owners. However, other people can benefit from the property allowance too. You can let your driveway, parking space or even storage space and pay no tax on the takings. Homeowners could even rent their homes for film or photoshoots under this broad tax exemption. I’ve covered these ideas and how to get started further in my article on passive income ideas.
Please note that the property allowance is different to the Rent a room scheme that we’ll cover next.
3. Rent part of your home to earn extra £7,500 tax-free income
You can make up to £7,500 per year tax-free through Rent a room scheme by letting out furnished accommodation in your home.
The good news is that you don’t even need to be a homeowner to take advantage of this! If you’re renting, you can let out a spare room, given your own lease allows this. You might also be able to get separate permission from your landlord to do this.
Rent a room allows you to make money tax-free by renting a spare room to a lodger. But you can also use it to let part of your home to short-term guests for a nightly rate through platforms such as Airbnb. I’m personally a big advocate of short-term rentals through Airbnb. It has allowed me to make thousands of pounds of tax-free income in the past couple of years. I specifically like the flexibility of Airbnb as you can choose when you want your home to be available for guests. In my area, it also enabled me to make double the money I would have been able to make by renting the room to a lodger. Finally, with a few automated processes in place, short-term rentals can be a fantastic source of passive income!
Before you ditch the idea because your area is not a ‘tourist spot’ or your place is ‘not that fancy’, go to Airbnb and search for properties in your area. You will see that there are all kinds of accommodations available to rent. Also, not all Airbnb business is around tourism either. In fact, lots of people visit less known places for work and to meet friends or family, for example.
4. Make tax-free money from matched betting
Matched betting is a technique used to make money from the free bets and incentives offered by online bookmakers. It’s generally considered low-risk betting as it’s based on the application of a mathematical equation rather than chance.
As you probably know already, gambling is not a stable way to make. It’s the opposite really. You’ll always lose in the long run because the odds are designed to ensure that the bookies always win in the long term. So, what you do, is use “free bet” promotions given by the bookmakers, in order to shift the odds back into your favour. You can use these free bets to be sure to make money no matter what happens. This said, you bet on every outcome of an event to ensure a guaranteed profit regardless of the outcome. It doesn’t matter whether your bet wins or loses, you still make a profit.
One of the best things about matched betting is the fact that any profit you make is completely tax-free! That’s right, you will not pay a penny in tax on anything you earn from matched betting. The simple reason for this is that under the UK gambling law, you don’t pay taxes for betting.
There are a host of sources online on how to get started so make sure you do your research to fully understand how to make money tax-free from matched betting.
5. Collect and profit from classic items and 'wasting assets'
Typically, you pay capital gains tax (CGT) on the profits you make on investments and selling personal possession. However, everyone has an annual tax-free capital gains allowance of £12,300. On top of this allowance, there are also other exemptions from capital gains tax:
- Personal possessions or ‘chattels’ sold for less than £6,000. Chattel refers to a tangible, movable item. This can include jewellery, antiques, paintings, coins, stamps and so on.
- Wasting assets with a predictable life of 50 years or less. To clarify, these are items that have a limited life span and irreversibly decline in value over time. Such fixed assets could be vehicles and machinery. It is generally accepted by HMRC that the following items fall within the exception of wasting assets: antique clocks and watches, guns, motor vehicles, boats, yachts and other vehicles.
So how to use these exemptions to make some extra money tax-free?
Collectables that increase in value over time
Here are some examples of items that typically increase in value in the long term:
- Vinyl records
- Vintage toys, such as porcelain dolls
- Ceramics, silverware and tea sets
- Retro game machines and video games
- Vintage clothing, accessories and jewellery
- Designer handbags
- Rare books and comics
- Trading cards
These exemptions can be a great way to make money tax-free, given the market for some of these types of items. This means that investors can stand to make significant returns. Collectors and investors should still be cautious. If the sale of these types of assets is deemed to be made as part of a trade or business, the exemption does not apply.
6. Brew and sell your own cider to make money tax-free
Are you a cider enthusiast? Or simple open-minded and crafty when it comes to earning tax-free income? If so, here’s another quirky, tax-free opportunity for you!
Interestingly, you pay no tax whatsoever if you produce and sell up to 7,000 litres of cider in a year. To clarify, 7,000 litres equals 12,000 pints.
Making cider is not rocket science either – you can find more information on the necessary ingredients and equipment on Love Brewing. If starting a cider side hustle intrigue you, make sure you understand, how to qualify for the tax exemption.
Don't let tax regulations to stop you from hustling
Whether you are saving money for a special purchase, trying to reduce your debt or working to become financially free, extra income is always welcome. However, tax rules and regulations can sometimes be difficult to get your head around. This shouldn’t stop you from making some extra money on the side though!
With this being said, I hope this list of six legal ways to make money tax-free gave you some new income ideas without having to worry about taxes. As always, it’s still good to do further research when having a new source of income or check with a tax professional if you have any specific questions related to your personal situation.
Let’s get hustling!