Many people don’t realise how much income can be earned completely tax free when you use the available allowances properly. In the right circumstances, you can receive up to £25,070 tax free. Here’s a simple breakdown of how this works.

1. Personal Allowance – £12,570

Every individual in the UK can earn £12,570 each year before paying any income tax.
This covers income from employment, self-employment, property, pensions or almost any taxable source.
If your income stays below this figure, you won’t pay any income tax at all.

2. Savings Allowance (Starter Savings Rate) – Up to £5,000

If your earned or non-savings income is below £17,570, you may qualify for the £5,000 Starter Savings Rate.

This allowance lets you earn up to £5,000 in bank interest completely tax free.
It works on a sliding scale, so the lower your other income, the more of this £5,000 is available.

For many people with modest salaries, low self-employment income or part-time work, this allowance is extremely valuable.

3. Rent-a-Room Relief – £7,500

If you rent out a furnished room in your own main home, you can claim Rent-a-Room Relief, allowing you to earn up to £7,500 tax free each year.

This applies if:

• The property is your main residence
• The room is furnished
• You’re renting to a lodger

If you share the income with someone else, the £7,500 is split.

Add Them Together – £25,070 Tax Free

In the right situation, someone could receive:

• £12,570 from salary or self-employment
• £5,000 from savings interest
• £7,500 from renting a room in their home

Total: £25,070 tax free

All completely within HMRC rules.

Who Can Benefit Most?

This setup works well for:

• Part-time workers
• Students
• People with modest earnings
• Those with savings generating interest
• Homeowners with a spare room to rent

It can offer a meaningful boost to household income while keeping tax bills low.

Things to Keep in Mind

• Going over any allowance may trigger tax.
• Rent-a-Room cannot be used for buy-to-let properties.
• The £5,000 savings allowance depends on your other income.
• National Insurance may still apply to earnings.

Need help working this out?

At Taxes Done Right Ltd, we can show you exactly how these allowances apply to your situation and make sure you’re not missing out on tax-free income you’re entitled to.