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State pensioners can get a boosted £20,070 tax-free Personal Allowance if they take advantage of a completely legal but little-known HMRC tax allowance.

The Government has extended the freeze on income tax bands for three more years recently, meaning that individuals can still only earn £12,570 each before they begin to be eligible to pay tax on amounts above that limit.

For state pensioners, the situation is a touch more complex still, as the state pension is taxable and always has been, but until recently has not been particularly close to the £12,570 threshold. As of April this year, it will be just £22 away from the threshold (for a new state pensioner on maximum National Insurance credits). Even if it goes over in 2027, Chancellor Rachel Reeves has given assurances that those who only receive the state pension will get given a special exemption from paying tax on it.

However, those with private pension income, savings income or any other form of income aside from the state pension will not be allowed this exemption, the government said, and therefore will be liable to pay tax if their total income exceeds £12,570.

To counter this, there is a scheme which state pensioners can take advantage of from HMRC that will boost your tax-free allowance all the way to a bumper £20,070, a full £7,500 higher than normal.

This is due to the rent-a-room scheme, a fully legal tax vehicle recognised by HMRC. Renting a room out allows you to earn up to £7,500 from letting out a bedroom in your home before the earnings are taxable.

Many state pensioners will often find themselves in a situation in which they can take advantage of this allowance. Many pensioners will have children who have flown the nest, leaving empty bedrooms. In such cases, getting a lodger in can not only help with monthly living costs but can grant you a big tax break too.

The scheme's allowance can only be applied to rooms being let in the property you live in, so you can't use it to cover buy-to-let income.

You have to declare it to HMRC as part of a self-assessment tax return, and if you earn £7,500 or less from renting out a room (£625 per month), then you will be exempt from paying any tax on that income.

In this way you can enjoy the £12,570 Personal Allowance and add another £7,500 on top without paying income tax on any of it, completely legally.

You can, of course, opt out of the scheme, and choose to have the rent-a-room income taxed normally. This might work out if you somehow made a loss from doing this (perhaps you had to refurb the whole room after extensive damage), and you want to offset the loss against your tax burden on another buy-to-let property.

The governent explains: "The Rent a Room Scheme lets you earn up to a threshold of £7,500 per year tax-free from letting out furnished accommodation in your home. The threshold is halved to £3,750 if you share the income with someone else.

"You can let out as much of your home as you want. The tax exemption is automatic if you earn less than your threshold. Which means you do not need to do anything.

"You must complete a tax return if you earn more than your threshold.

"You can then opt into the scheme and claim your tax-free allowance. You do this on your tax return.

"You can choose not to opt into the scheme and instead record your income and expenses on the property pages of your tax return."