Five Tax Hacks
- May 28
- 3 min read
The Marriage Allowance
Say you are married or in a civil partnership. One of you is a Basic Rate Income Taxpayer (earning between £12,570 and £50,270 a year) - the other earns less than £12,570 (which is the current tax free “personal allowance”).
The partner that earns less than £12,570 can transfer up to 10% of their un-used personal allowance (£1,257) to the other, reducing the recipient’s tax bill by up to £251 a year.
If you are only just hearing about this for the first time, and have been in this position as a couple for several years - you can make a claim to the Revenue and backdate it for up to four tax years, meaning a couple could pocket around £1,000 in one go from HMRC. Tidy.
The “one off” £29,000 ISA allowance
Up to the age of 18, every youngster has a £9,000 annual Junior ISA allowance available to grow that money tax free. However, during the tax year (April 6th to April 5th) that little Johnny turns 18, he is also entitled to the £20,000 full adult’s ISA allowance from the date he blows the candles out and makes a mess of himself after necking a bottle of White Lightning.
In effect then, for one tax year only, a 17/18 year old (the bank of Mum and Dad) can get up to £29,000 into a tax free account.
The “extra” £20,000 needs to land in the ISA account before the end of the tax year - so parents of kids who turn 18 at the end of March or the very start of April need to be really on the ball.
The Trading Allowance
Income generated from casual self employment of up to £1,000 is tax free and need not be reported to HMRC.
So if you are flogging used clothes on Vinted or old lamps on Ebay, and the income generated is under £1,000 a year - there is no need to fill out a tax return or pay any tax.
Claiming Brought Forward Losses
This one really can move the dial. If you sell an asset (not in an ISA or a pension or a bond), any gain on that asset above £3,000 of profit is subject to Capital Gains Tax at a rate of either 18% or 24%.
If you make a loss instead however, while not ideal all is not lost. For you can offset this loss against future capital gains - as long as you notify HMRC of the loss realised within four tax years of the end of the tax year where the loss was made.
An example:
Our fictional client invested £100,000 into a company in March 2021. The stock does poorly and she sells it for £50,000 in March 2023.
At the same time in March 2021 she invests £100,000 into another stock which doubles, and she sells that one for a £100,000 profit in May 2026.
Normally, this profitable sale would give rise to a Capital Gains Tax liability of £23,280.
But as this diligent individual had already notified HMRC of the loss made in 2023, her Capital Gains Tax bill is only £11,280 as she is able to offset the £50,000 loss against the gain.
As long as the Revenue are notified in time, losses can be carried forward in perpetuity. There is no time limit for when you have to use them by. And such losses could be particularly handy in a world where future Capital Gains Tax rates go up by a lot.
“Rent-a-Room”
The artist also known in some quarters as the Lodgers’ Allowance.
If you own your own home, you can earn up to £7,500 per year tax-free by renting out a furnished room to anyone.
There are two “watch outs” with this one - first off, many residential mortgages prohibit sub-letting without the lender’s consent. Taking in a lodger without checking the terms of your mortgage could technically put you in breach.
Secondly, if you use part of your home exclusively for commercial purposes, you can lose a proportionate slice of your Principal Private Residence (PPR) relief when you come to sell. However, a lodger who shares the living space with you (eating together, using communal rooms) is generally not treated as exclusive commercial use, so PPR relief is typically preserved. But if you’ve effectively partitioned off a self-contained flat, you could have a problem.
Comments