Tax breaks for low-income earners in the UK
Low-income earners in the UK can benefit from a number of tax breaks. These can help to reduce the amount of tax they pay and save them money.
Here are some of the most common tax breaks:
- Pension contributions: Low-income earners can save up to £40,000 per year into a pension tax-free. This means that they won’t have to pay any income tax on the money they contribute.
- Childcare costs: Low-income earners can claim up to £2,000 per year per child towards childcare costs. This can be a great help if they are working and have young children.
- Interest on savings: Low-income earners with an income of £12,570 or less can earn up to £5,000 of interest on their savings tax-free. This is known as the “starting rate for savers”.
- Rent-a-room scheme: Low-income earners can rent out a room in their home and earn up to £7,500 per year tax-free. This is a great way to make some extra money if they have spare space in their home.
- Trading allowance: Low-income earners can earn up to £1,000 per year from a side hustle tax-free. This is a great way to earn some extra money without having to worry about paying tax.
In addition to the aforementioned tax incentives, low-income individuals may also be entitled to other benefits, including Universal Credit (UC) and Tax Credits (TC). It is essential to consult HM Revenue and Customs to determine whether they are entitled to any of these benefits or not.
Here are some additional tips for low-income earners to save money on taxes:
- Keep good records: It is important to keep good records of their income and expenses so they can claim the tax breaks they are entitled to. This includes things like receipts for childcare costs, rent receipts, and any other expenses that are tax-deductible.
- Use a tax-free savings account: If they have any savings, consider using a tax-free savings account. This will allow them to earn interest on their savings tax-free.
- Get professional help: If they are struggling to understand their tax situation, they can get professional help from a tax adviser. A tax adviser can help them to make sure they are claiming all the tax breaks they are entitled to and that they are paying the correct amount of tax.