For millions in the UK, the freeze on the Personal Allowance feels like a hidden tax increase. Although wages may go up, the tax-free earning limit has stayed at £12,570 since 2021 and will remain frozen until 2031. This means more of your income gets taxed, even if you aren’t actually earning more. But what if you could legally increase your personal allowance to £18,570?
Thanks to some lesser-known HMRC rules, you might be able to do this. Known as the HMRC £18,570 savings trick, this strategy can help you save hundreds of pounds each year, completely tax-free. It’s not a loophole; it’s a legitimate method approved by HMRC to help you keep more of your money.
What is the HMRC £18,570 Savings Trick?
Let’s start with the basics. In the UK, everyone gets a standard Personal Allowance of £12,570 each year. This is the amount you can earn from jobs, pensions, or self-employment before paying Income Tax. If you earn less than this amount, you could gain an extra £6,000 of tax-free income by using your savings.
This is possible because of three allowances:
- The HMRC Starting Rate for Savings
- The Personal Savings Allowance
- The Personal Income Allowance
Together, these allow eligible UK taxpayers to earn up to £18,570 tax-free each year. This is a smart way to use UK tax rules, not a trick to avoid taxes.
Whether you’re a student with a part-time job, a pensioner relying on savings, or a part-time worker with a modest income, this option might benefit you.
Understanding the Starting Rate for Savings
The HMRC starting rate for savings is a tax relief that many people don’t understand or use. It allows you to earn up to £5,000 in savings interest tax-free, but you must meet certain conditions.
To get the full starting rate, your other income (like wages or pensions) must be below £12,570. If you earn more, the allowance decreases by £1 for every £1 over the limit. Once your income reaches £17,570, the starting rate disappears altogether.
For example, if you earn £14,000 from your part-time job, you exceed the Personal Allowance by £1,430. This reduces your tax-free savings interest to only £3,570.
Knowing how to calculate this correctly is important to make the most of this tax-free savings opportunity.
The Extra Boost: Personal Savings Allowance
You may qualify for a Personal Savings Allowance along with your starting savings rate. This allowance lets most basic-rate taxpayers earn an extra £1,000 in savings interest without paying tax.
If you pay higher rates, your allowance is cut to £500, and additional-rate taxpayers get nothing. However, if your total taxable income is still within the basic-rate band, HMRC’s personal savings allowance can help you reach the £18,570 tax-free income limit.
Here’s a simple breakdown:
- £12,570 = Personal Income Allowance
- £5,000 = Starting Rate for Savings
- £1,000 = Personal Savings Allowance
This is how to earn £18,570 tax-free in 2026 without violating any rules. It’s a great option for households that depend more on savings than on wages.
Example Scenarios: Who Can Benefit?
Cheryl: No Work Income, Only Savings
Cheryl is a semi-retired homeowner with no job or pension income. She earns £20,000 a year from savings interest. Here’s how her tax allowances work:
- £12,570: Covered by her Personal Allowance
- £5,000: Covered by the Starting Rate for Savings
- £1,000: Covered by the Personal Savings Allowance
This totals £18,570, which is tax-free. The remaining £1,430 is taxed at 20%, resulting in a tax bill of £286. If she had accepted the bank’s automatic tax deduction, she would have paid much more.
Tom: Part-Time Worker With Modest Savings
Tom works part-time at a local shop, earning £9,000 a year and making £3,000 from savings interest.
- His £9,000 income uses part of his Personal Allowance.
- The remaining £3,570 of the allowance goes toward his savings.
- He still qualifies for the full £5,000 Starting Rate for Savings, which is only reduced by his £9,000 income.
- The £1,000 is covered by the Personal Savings Allowance.
Tom pays no tax. That’s how the HMRC £18,570 savings trick works.
Why This Matters in 2026: Allowances Frozen
The UK government’s choice to keep the Personal Allowance at £12,570 until at least 2031 is having a big effect. As salaries and living costs go up, more people are facing income tax even though their real incomes aren’t growing.
It’s important to find legal ways to increase the Personal Allowance in the UK. The tax-free income strategy for 2026 focuses on making the most of what’s available, not avoiding taxes.
With higher mortgage costs, stagnant wages, and inflation, the average UK household could greatly benefit from these allowances. If you earn below the threshold, check how you can maximise your tax-free income from savings.
Reclaim Tax You Already Paid on Savings
Did you pay tax on your savings interest in the past? Good news! You can reclaim that tax by filing a Self Assessment Tax Return or submitting an R40 form to HMRC.
Many banks take tax from savings interest automatically, especially if you didn’t tell them not to. If you haven’t gone over your allowances, you can get that tax back sometimes for up to four years.
With the January 31 deadline for reclaiming interest coming soon, now is the time to organise your documents. The skilled accountants at Clarkwell & Co. can help you check your statements, prepare your return, and maximise your refund.
Need help? Our HMRC Tax Investigation and Tax Investigation Service teams in London are here to assist you with any questions or issues.
A Martin Lewis Tax Tip That Holds Up
Martin Lewis is a trusted name in UK consumer finance. He founded MoneySavingExpert and has shared many ways to cut unnecessary tax payments, including a tip about HMRC and earning £18,570.
Lewis says that if you earn less than £18,570 a year from your job and savings, you won’t pay tax on the interest from those savings.
This tip is especially relevant in 2026, as many people face rising living costs. Saving on taxes matters for everyone, not just the wealthy.
Who Should Use This Trick?
This strategy isn’t just for retirees or those with big savings. The £18,570 tax-free income plan can help many people, especially now.
You should consider this if you are:
- A freelancer with changing income during the year.
- A student doing part-time work with savings or an ISA.
- A pensioner living on interest, not a full pension.
- A sole trader with income that varies by season.
- A part-time worker with inherited savings.
Figuring out your situation and what benefits you can get can be confusing. That’s why our expert accountants in Central London and trusted accountants in North London offer consultations to help you understand your options.
Pro Tips from Clarkwell & Co. Chartered Certified Accountants
At Clarkwell & Co., we’ve helped many people in London make the most of their tax-free allowances. We’re located in the city and focus on giving clear, ethical, and effective accounting advice.
Here are some simple ways to benefit from the HMRC £18,570 savings trick:
Track Your Income: Include your wages, pensions, dividends, and interest.
Download Your Bank Interest Summary: This is important if you have ISAs, savings accounts, or bonds.
Use HMRC’s Tax Checker Tool: Check if you’re over your allowances.
Act Before January 31: This helps you avoid penalties and recover your tax sooner.
Consider Tax-Efficient Investments: Look into SEIS and EIS Tax Relief Services in London for more options.
Our goal is to help you stay compliant while maximising your benefits. Whether you’re a student, landlord, or retiree, we’re here to support you.
Don’t Leave Tax-Free Money on the Table
In uncertain economic times, knowing how to earn £18,570 tax-free can provide real financial help. This approach is simple, and anyone earning below a certain amount can use it.
The UK tax exemption for 2026 is not really a loophole. It is part of HMRC’s plan to help low- and moderate-income savers.
If you’re unsure whether you qualify, contact our friendly accountants in Camden. We’ll clarify your eligibility, calculate your potential savings, and file any necessary documents.
Book a consultation with Clarkwell & Co. today to take control of your finances smartly.
