A tax allowance is an amount of money that you can earn without paying tax on it. You can also use a tax allowance to reduce your tax bill if your expenses are too small or you can’t find your receipts.
There are a few different tax-free allowances in the UK:
- most UK taxpayers get a Personal Allowance of £12,500
- anyone selling assets (property, art, shares, crypto, etc) for a profit get a Capital Gains Tax Allowance of £12,300
- self-employed people get a Trading Allowance of £1,000 – you’ll need to claim this one through your tax return, it’s not automatic (unless you earned under £1,000 from self-employment)
- landlords earning rental income get a Property Income Allowance of £1,000 – same, you need to claim it (unless you qualify for other, better allowances, like the Rent A Room Scheme)
- and a few other tax allowances.
Each allowance has to be used in a tax year – you can’t “carry it forward” to the next one.
In most cases, if you earn under the tax allowance for a kind of income, you don’t even need to declare those earnings.
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