5 Ways to Make Tax Free Money in the UK Legally

Are you looking for an easy way to make a bit of extra money and not pay any tax on it? Have you put in another tough month’s grind and been utterly deflated a week after payday?

Ever asked yourself this:

How can I get out of this rat race, earn enough money to live comfortably and not worry about paying any taxes?

It’s a tough question to answer, especially in the UK, where it seems the Taxman is hiding behind every corner waiting to pounce on any gains you make. You wouldn’t be wrong for thinking that either; because he is!

I’ve been earning tax-free income since 2012 and in this guide, I’m going to blow the lid on some of the lesser-known ways you can legally earn extra money and not pay a penny in taxes. Power to the people. Stick it to the man!

You Already Have a Basic Tax-Free Allowance

As someone on the conveyor belt of employment, currently, you are legally allowed to earn up to £12,500 per year from April 2019 before you pay any income tax on it. This amount is set to rise to £12,760 in 2021.

This means that as an employed person, the first £12,500 of your income is tax-free. Everything you earn above that amount, the Taxman is going to take a bite of at the rates below. The amount he takes is dependant on the amount over that threshold you earn.

Unless, that is, the income you earn is tax-free income.

Lesser Known Ways to Earn Tax Free Income in the UK

I’ve been earning tax-free income since 2012. Prior to starting to trade the markets as a supplemental source of income in 2011 (although it took me 2 years to turn a profit), I had been a small business owner and let me tell you, that certainly was not tax-free.

When I sold my business, I ended up paying 25% in capital gains tax. It was such a soul-wrenching experience, I vowed that from that moment on, I would always find ways to legally minimise my exposure to tax.

Since then I’ve looked into all kinds of avenues, and I’ve listed the good ones below so that you too can protect the income you make and keep as much of your sweat equity as you can.

After all my digging, my top 5 tips for how to make tax free money in the UK are to trade on the stock market using spread betting, take advantage of your £1000 property and trading allowances, buy and sell collectable ‘wasting assets’ that appreciate in value, take advantage of your £7500 Rent a Room allowance or make up to 7000 litres of tax-free cider.

#1. Trade on the Stock Market for Tax Free Income

If you think you can’t do this for yourself then you should read my post about how to start trading the stock market if you don’t have much money. It is not as complicated as you might think.

Providing this is not your sole source of income, and you have another source of ‘subsistence’ income (perhaps a full-time PAYE job), speculating on the stock market is 100% free of income tax providing you use the right vehicle to do it.

What do I mean when I say the ‘right vehicle’? Well, there are a number of ways you can trade the stock market and some of them aren’t tax free.

If you trade the markets professionally and it is your sole source of income, or the main source of income, you’ll end up having to declare your trading income as self-employed income. And that’s why, no matter how good you become, you don’t become a self-employed trader. Ever.

Methods of Trading the Stock Market

1. You can buy the underlying asset (shares) directly via a broker like Hargreaves Lansdown. You buy the shares at X amount and then, ideally, sell them at the much higher Y amount. You will also earn dividends if the company you are invested in pays one while you own the shares. If you do this inside a Stocks & Shares ISA, any gains you make will be free of income and capital gains tax.
2. You can place ‘bets’ on whether or not a share price is going to go up or down via Financial Spreadbetting companies like IG Index, CMC Markets, City Index or ETX Captial. Because you’re ‘betting’, or ‘gambling’, you’re essentially not liable to pay income or capital gains tax on any profits – providing you’re not using it as your main or sole source of income.

Want To Learn How to Trade, Even if You’ve Never Done It Before?

If you’d like to know how you can get started trading the stock market, you should watch my YouTube video series, where I’ll show you exactly how I made £25,000 tax free profits in 2018 for less than 2 hours work per week. I’ll show you:

• How to open a trading account
• How I select my winning stocks
• How to protect your capital and minimise your risk with proper position sizing and risk-management
• How I trade the markets in an easy-to-copy, step-by-step format that you can follow.
• How you can earn surplus income every month.

Disclaimer: I’m not a teacher, trainer or financial guru – I’ve just done stuff that worked for me and I think it could help you too.

#2. Use Your £1000 Tax Free Trading Allowance and Property Allowance

Did you even know that you had a £1000 trading allowance? In 2017, the UK Government introduced the Finance Bill 2017 that included provisions for relief for 2 new annual tax allowances for individuals of £1,000 each, a trading allowance and a property allowance.

The Trading Allowance Allows You to Sell Up To £1000 of Goods or Services Tax Free

The trading allowance is a tax exemption of up to £1,000 a year for individuals with trading income from:

• self-employment
• casual services, for example, babysitting or gardening
• hiring out personal equipment, for example, power tools
• selling on eBay

If your annual gross income from these is £1,000 or less, you do not need to tell HMRC.

The Property Allowance Allows You To Earn £1000 of Income from Your Land or Property Tax Free

The property allowance is a tax exemption of up to £1,000 a year for individuals with income from land or property.

If you own a property jointly with others, you’re each eligible for the £1,000 allowance against your share of the gross income from your property.

That’s great news if you’re a newly housed couple or a young family with a spare room to rent out (via Air B’n’B for example) or plenty of parking space on the drive (which you can rent out), because when you combine the allowances, that’s an extra £2000 per year tax free.

If you think this is not something you could make use of, think again. A quick scan of AirBnB properties in your area will show that all kinds of homes are available to rent. Sometimes people just want a decent place to crash. It doesn’t need to be fancy.

This is different to the Rent a Room Scheme outlined in #4 below.

#3. Collect Things That Interest You and Sell Them Tax Free When You No Longer Want Them

This is a tax-free method of income generation that you can do quite easily. It’s also one of the few methods of tax free income generation that you can do the old-fashioned way; with cash.

The basic premise is that you buy things that interest you and then sell them later when you no longer want them for a tax free profit. This is all possible due to a tax exemption for Chattels that are also wasting assets.

Of course, it does depend on the collectables increasing in value while you hold them so choose your collectables wisely. I’ve included a list of good ones that have historically increased in value at the bottom of this section.

What’s a Chattel?

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
• paintings, antiques, items of crockery and china, plate and silverware
• motor cars, lorries, motorcycles
• items of plant and machinery not permanently fixed to a building

What’s a Wasting Asset?

A wasting asset is an asset with a predictable life of 50 years or less. Any gain or loss on the disposal of a chattel which is a wasting asset is exempt from Capital Gains Tax unless you:

• have, or could have, claimed capital allowances for it
• loaned a chattel which had a predictable life of more than 50 years, such as a piece of jewellery, work of art or antique, to a business which then used it as plant

Great Exampes of Chattels & Wasting Assets That Might Increase in Value Over Time

• Pinball Machines
• Antique Toys
• Retro Gaming Stuff
• Jewellery
• Paintings (see case law about this here)
• Classic Cars
• Clothing
• Wine

Do you know of any other collectables that increase in value over time? Leave a comment below and help your fellow man (or woman) pay less tax.

#4. Rent Out Your Spare Room and Earn an Extra £7,500 Tax Free Income

Yes, I bet you didn’t know that? The Rent a Room Scheme allows owner-occupiers and tenants to receive tax-free rental income if you provide furnished accommodation in your only or main home.

You can take advantage of this even if you’re a tenant!

For the tax year 2018 to 2019, the annual Rent a Room limit is £7,500. This reduces to £3,750 if someone else receives income from letting accommodation in the same property, such as a joint owner. 

When Can You Use The Rent a Room Scheme?

You can use the scheme if you let a furnished room to a lodger. If your gross receipts from letting are not more than the Rent a Room limit of £7,500 (or £3,750 for joint owners) you do not pay tax on your profit. Your gross receipts could include:

• rental income, before expenses
• any amounts you receive for meals, goods and services, such as cleaning or laundry
• any ‘balancing charges’

It’s important to note this is separate and can be taken advantage of in addition to the Property Allowance discussed above. Maybe now is the time to tidy up that spare room you have and put it to good use?

#5. Brew and Sell Your Own Tax Free Cider

Do you love a good, crisp fresh cider in the summer? I know I do. Well, there’s another little-known tax free opportunity if you make and sell your own cider (including perry and pear).

Yes, you read that right. You’ll pay no tax whatsoever if you produce and sell up to 7000 litres of cider (or perry or pear cider) in any rolling 12 month period. 7000 litres is 14000 500ml bottles. How much could you sell a 500ml bottle of cider for?

I know what you’re thinking, “my garden isn’t big enough to grow my own apple trees.” You don’t need to! You just need to produce the cider. If you’re lucky, you could collect excess apples or you could buy in apples from your nearest orchard.

Perhaps you have a community growing hub near you that would donate apples, or perhaps you could use the hub to press your apples? There are a lot of opportunities with this one if you dig a little deeper.

Making cider isn’t actually that difficult, and that makes this opportunity more accessible than you might think.

To top it off, there’s a ripe and growing appetite for craft and home-grown, organic juices and ciders in the UK, so this one aligns perfectly with current trends in consumer behaviour.

What Do You Think? Could You Produce Your Own Tax Free Cider?

What do you think? Does running your own cidery sound like fun? Let me know in the comments below if this just seems too far out of reach for you. Likewise, if you’ve managed to take advantage of this, I’d love to hear your story and I’m sure others would too.

I’m in the process of trying to pull something together for this one myself and I’ll be sure to let you know if/when I manage it.

Are There Other Ways to Earn Tax Free Income in the UK?

If you know of any other ways to earn tax free income then please share them in the comments below. I’ll update this guide with any that are good enough and I’ll make sure to credit you with a link back to your blog/instagram/website when I do.

The goal is to create an actionable list of things you can realistically start doing to increase your income and start taking the steps you need to get out of the rat race forever.

In the meantime; be happy. Trade well.