Earn tax-free income through ISAs, cashback, Government allowances and more

Let's start with an obvious one. Everyone gets an ISA allowance each year that can be spread across cash ISAs, Stocks and Shares ISAs and peer-to-peer products known as the Innovative Finance ISAs.

The allowance for the current tax year is £15,240. You must be over 16 to open a cash ISA and over 18 for an Investment ISA.

Any interest earned in these products is tax-free. The Market Harborough Building Society offers an easy access deal with a variable rate currently at 1.3%.

The best cash rates tend to be on products where your money is locked away for longer, such as the five-year fixed-rate Cash ISA from Shawbrook Bank at 1.9%.

If you are prepared to take a bit more risk for a potentially higher return then it may be worth considering investing with a Stocks and Shares ISA.

Get started by reading our beginner's guide to Stocks and Shares ISAs.

Banks are currently offering up to £150 to switch current account, yet many of us fail to take advantage of this free cash just to move our money.

Since the launch of the current account switching service in 2013, all transfers between one current account provider and another should be completed within seven days.

The Co-operative Bank will pay you £150 to switch to its Standard Current Account, provided you set up four direct debit payments.

Alternatively, First Direct offers £100 to switchers provided you deposit at least £1,000 each month.

You can also earn decent interest on current accounts tax-free.

TSB’s Classic Plus Account paying 5% on balances up to £2,000 or a Santander 123 Current Account and get 1.5% on balances up to £20,000.

Read more at The best bank accounts for switching bonuses.

 

Cashback websites are a popular way to earn money on your shopping or when switching utility provider.

Quidco claims you could earn up to £252 a year from cashback.

HMRC isn’t too worried about this either and any money you receive is treated as a discount. Therefore there is no tax to pay.

The same applies to cashback earned when spending on credit cards.

Earn tax-free returns with a Stocks and Shares ISA

The Marriage Allowance lets a spouse earning under the tax threshold, currently £11,000, to transfer some of their personal allowance to their husband or wife. This can be beneficial where one spouse earns less than another as the higher earning partner can boost their tax-free allowance.

So if a husband was earning under £11,000 he can currently transfer £1,100 to his wife, saving her £220.

Earn tax-free returns with a Stocks and Shares ISA

New rules on dividends introduced in April 2016 allows anyone earning dividends from shares to make up to £5,000 tax-free.

This applies to investments you may have in shares through a trading account, but also is an efficient way of tax planning if you run your own company. You could make a spouse a shareholder and make use of their allowance to boost the amount you can both earn before paying tax.

Once you earn more there is a 7.5% charge for basic rate taxpayers, 32.5% on the higher rate and 38.1% for additional rate payers.

Find out more over at The Dividend Allowance: what it is, how to benefit and the best share picks.

Former chancellor George Osborne announced two new £1,000 allowances for ‘micro-entrepreneurs to be introduced in April 2017.

Very little detail has been released but the perks, known as the ‘sharing economy’ allowance, mean individuals earning income online from property or trading won’t need to pay tax on the first £1,000 in each case.

This means if you rented out an Airbnb property and also sold goods on eBay you would benefit from two separate allowances giving you up to £2,000 of income tax-free.

The allowance also applies to income from online surveys which currently should be reported for tax purposes.

If you have a spare room in your home and are looking to get some income from it, then it may be worth finding a lodger.

You can earn up to £7,500 a year from the rent-a room scheme tax fee. This is not just for homeowners. If you rent a property you can also lease a room to a lodger providing your landlord approves it.

Read more at rent a Room scheme: tax-free cash from your spare room.