A combination of five allowances could legally increase a household’s tax-free income up to £16,000. Experts say many families are unaware of these available schemes and risk paying more than necessary.
The HMRC’s personal tax allowance remains frozen at £12,570, unchanged since 2021. While inflation has steadily pushed wages higher, more households are now finding themselves edging into the taxable income band. But according to tax and finance specialists, there are ways to legally extend this threshold, by combining multiple reliefs.
A new analysis reveals that using five government schemes in tandem could make up to £16,000 of income tax-exempt. According to personal tax experts at AJ Bell, many eligible households simply aren’t claiming these allowances, often due to lack of awareness or misunderstanding of the system. As the deadline for self-assessment tax returns looms, understanding and applying these reliefs could significantly reduce what some families owe.
Five Allowances That Lift the Tax Threshold to £16,000
According to Sky Money, households may legally extend their effective tax-free threshold through a combination of government allowances. These include the Marriage Allowance (£1,260), the Trading Allowance (£1,000), Rent-a-Room Relief (£7,500), Tax-Free Childcare (£2,000), and the Starting Rate for Savings (£5,000). When used correctly, these total £16,760 of tax-free income, although eligibility criteria mean this figure applies selectively.
The Marriage Allowance allows a lower-earning spouse to transfer £1,260 of their personal allowance to a higher-earning partner, reducing their tax bill by up to £252. This applies if one partner earns below £12,570 and the other earns between £12,570 and £50,270. According to AJ Bell, around two million eligible couples still haven’t claimed the relief.
The £1,000 Trading Allowance applies to income from self-employed work or casual side jobs, such as babysitting, selling items online, or offering local services like driveway rental or dog-walking. Laura Suter, head of personal finance at AJ Bell, notes that the allowance is designed to support those with minor earnings outside their primary income stream. “Just make sure you keep track of any relevant paperwork proving your income in case HMRC asks for it later,” she says.
Under the Rent-a-Room Scheme, homeowners who rent out a furnished room in their primary residence can earn up to £7,500 tax-free. This relief also covers B&B or guesthouse operations within the same property. However, if the property is jointly owned, the allowance is halved per person.
Savings and Childcare Schemes Further Reduce Liability
A lesser-known benefit, the Starting Rate for Savings, offers up to £5,000 of tax-free savings interest to individuals earning less than £17,570. The amount tapers off by £1 for every £1 earned over the basic personal allowance threshold. According to financial experts, transferring savings to the lower-earning partner in a household is a strategic way to maximise this benefit.
The Tax-Free Childcare scheme also remains underutilised. According to data cited by the Express, although around 1.3 million families qualify, nearly 800,000 are not claiming it. Parents can receive up to £2,000 annually per child under 11. For every £8 deposited into a dedicated childcare account, the government adds £2. Eligibility depends on earning at least the minimum wage for 16 hours per week and not receiving universal credit or childcare vouchers. The scheme can offer up to £4,000 annually for children with disabilities until age 16.
With the self-assessment tax return deadline imminent, experts stress that many households could be paying more tax than necessary. According to the Institute for Fiscal Studies, the continued freeze on income tax thresholds is expected to raise £39 billion annually by 2029–30. For low- and middle-income households, using the existing tax reliefs could be a much-needed financial buffer.
