Looking for ways to boost your income without paying taxes? Let’s explore some tax-free side hustles in the UK!
Did you know that an average UK household pays £1,101,255 in taxes over a lifetime? Even though taxes fund essential public services, it’s still pretty crazy to think that the amount you pay in taxes could make you a millionaire!
While many online side hustles and freelancing can be great ways to earn some extra cash, it’s important to note that many side incomes are taxable. Luckily, there are various ways to legally earn tax-free income. Read on to learn about tax-free side hustles in the UK that can help you boost your income.
How much money can I make without paying taxes?
Before we get started, it is essential 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 or other income source before paying any income tax on it. For the 2023-2024 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 2023-2024.
In addition to the personal allowance, there are a few different allowances and tax exemptions that allow you to make some extra money from side hustles tax-free. Let’s take a look at them next.
| Tax Year | 2023/24 |
| 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 £125,140 |
Tax-free side hustles UK
Normally, anything you earn after the tax-free personal allowance is liable for income tax. But there are ways to 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 tax-free side hustle ideas you can use to boost your income.
1. Earn £1000 a year tax-free from any side hustle
If you have a side hustle in the UK, you’ll be pleased to know that you can earn £1,000 a year tax-free before having to declare the income to HMRC. This is called a trading allowance. You can use the trading allowance if you make money on the following:
- Self-employment or freelancing
- 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 you have a side hustle, make sure you’re taking advantage of the trading allowance to boost your tax-free income.
2. Earn £1000 a year tax-free from property income
Another tax exemption that can be used in addition to the trading allowance is the property allowance. The property allowance is a tax exemption of £1,000 a year for individuals with income from land or property. The good news is that the property allowance is not just for property investors or second homeowners. It can also be used for tax-free side hustles such as renting out a driveway, parking space, storage space, or even a home for film or photoshoots – all of which are great passive income ideas.
If you have any income from land or property, be sure to take advantage of the property allowance to boost your tax-free income.
Please note that you cannot use this allowance on income from letting a room in your own home under the Rent a Room Scheme. Next, we will cover that separately.
3. Earn £7,500 tax-free with Rent a Room scheme
Letting out a room in your home is another great tax-free side hustle option in the UK. You can make up to £7,500 per year tax-free through the Rent a Room scheme by letting out furnished accommodation in your home. You don’t necessarily need to be a homeowner to take advantage of this. If you’re renting, you might be able to let out a spare room, given your own lease allows this. Alternatively, you may be able to get separate permission from your landlord.
You can let out as much of your home as you want under the Rent a Room scheme. For example, you can use it to rent out a spare room to a lodger. Alternatively, you can let out part of your home to short-term guests for a nightly rate through platforms such as Airbnb.
If you are not keen to share your home long-term, short-term rentals can give you more flexible income on your terms. It lets you choose when you want your home to be available for guests. Airbnb can also easily provide double the income compared to having a lodger. Before you dismiss the idea because your area is not a tourist spot or your place is not that fancy, take a look at Airbnb and search for properties in your area. You’ll see that there are all kinds of accommodations available to rent, and not all Airbnb business is around tourism.
If you have a spare space that you want to use to make some extra cash, consider using the Rent a Room scheme for tax-free income. Carefully weigh the pros and cons of long-term lodgers and short-term guests.
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4. Make tax-free money with matched betting
Matched betting is a technique you can use to make money from the free bets and incentives that online bookmakers offer. Although technically a form of betting, the practice, if carried out correctly, is very low-risk. One of the best things about matched betting is that any profit you make is completely tax-free! This is because gambling winnings are not taxable in the UK.
To understand matched betting, it is important to know that bookmakers set their odds in a way that ensures they will always win in the long run. However, if you take advantage of free bet promotions, you can shift the odds in your favour. This way you make a guaranteed profit, regardless of the outcome of an event.
Here is a simplified example of how matched betting works:
- A bookmaker offers a free bet of £10 to you as a new customer.
- You place a £10 bet on one outcome of an event at one bookmaker.
- You then place a “lay bet” on the opposite outcome of the event at another bookmaker.
- Regardless of the outcome of the event, you will make a profit of between £5 and £7. This is because you will either win their bet with the first bookmaker (and keep the winnings) or lose your bet with the first bookmaker but win your lay bet with the second bookmaker.
Matched betting is a legit, tax-free side hustle in the UK. There are a host of resources online on how to get started with matched betting, so be sure to do your research to fully understand how it works before getting started.
5. Sell personal possessions and wasting assets tax-free
You usually pay capital gains tax (CGT) on the profits you make from selling investments and personal belongings. However, everyone has an annual tax-free capital gains allowance of £6,000 a year (this will be reduced to £3,000 from 2024 onwards). There are also other exemptions from CGT, including:
- Personal possessions or ‘chattels’ sold for less than £6,000. The word ‘chattel’ is a legal term meaning an item of tangible, movable property – something you can both touch and move. Your personal possessions will normally be chattels, including items of household furniture, clothes, jewellery, paintings, antiques, cars, and motorcycles.
- Wasting assets with a predictable life of 50 years or less. Wasting assets are those chattels with a predictable life of 50 years or less. An example here might be an item that has a high value when you buy it, but which becomes less desirable as you use it over the years, and as a result, it’s less valuable. Examples include washing machines, televisions, radios, caravans and yachts. In addition, antique watches and clocks, wine, and vintage motorcycles (despite a predictable life in excess of 50 years) are treated as wasting assets.
How can you use these exemptions for a tax-free side hustle in the UK? One way is to sell unwanted personal possessions. Another option is to buy tax-exempt collectables that are likely to increase in value over time and then sell them when you no longer want them. This is a relatively simple way to make money, but it is important to do your research and choose collectables that are likely to increase in value.
Which collectables appreciate in value?
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
- Paintings
- Retro game machines and video games
- Vintage clothing, accessories and jewellery
- Designer handbags
- Rare books and comics
- Trading cards
6. Other ways to make extra money tax-free UK
In addition to the tax-free side hustles and allowances covered so far, there are a few other ways to earn some extra cash without having to pay taxes:
Cashback: When you use cashback credit cards or shop online through sites like TopCashback and Quidco, you can earn your cashback completely tax-free. In the eyes of HMRC, cashback is considered a discount and is therefore tax-free income.
Clinical trials: You can earn money for participating in clinical trials, which are research studies that test new drugs and treatments. You don’t have to pay tax on money you receive for participating in a clinical trial, as long as it only covers your reasonable costs.
Compensation: If you have been injured or wronged in some way, you may be entitled to compensation. Compensation is typically not taxable. For example, if a film company pays local residents to compensate them for the disruption caused by filming, those payments are likely to be tax-free.
Savings interest and investment profits on ISA accounts: Individual Savings Accounts (ISAs) are tax-efficient savings and investment accounts. You can earn interest on your savings and investment profits in an ISA without having to pay taxes. The annual ISA allowance for 2023-24 is £20,000, which means that you can deposit up to £20,000 into an ISA each tax year without having to pay tax on any interest or profits earned.
Conclusion: Tax-free side hustles UK
Whether you’re aiming to save for a special purchase, reduce debt, or achieve financial freedom, additional income is always a welcome boost. And while navigating tax rules and regulations can sometimes feel daunting, there are a number of legitimate tax-free UK side hustles to earn more money.
If you have aspirations to expand your side hustle beyond the tax-free thresholds, it is important to learn to manage your side hustle finances well. This includes tracking your income and expenses and filing a self-assessment tax return each year. It is always a good idea to do your own research on tax-free side hustles and to seek professional tax advice if you need it to ensure that the information is relevant to your personal circumstances.
With careful planning and execution, you can achieve your financial goals while also enjoying the satisfaction of running your own side hustle. So, what are you waiting for? Embark on your side hustle journey today!
What a helpful post! Saved for later for sure
This is quite interesting. Now, I’m wondering if we have some of these rules in Australia, so we can earn tax free on side hustles.
I wasn’t aware that Air Bnb rentals are tax-free businesses. That’s pretty amazing when you put it like that