Sammie Ellard-King
I’m Sammie, a money expert and business owner passionate about helping you take control of your wallet. My mission with Up the Gains is to create a safe space to help improve your finances, cut your costs and make you feel good while doing it.
When we consider income, the method of passive income you have from an investment or a service you provide comes to mind.
This income stream might not require much work to maintain, and we might refer to this as a side job or side hustle.
But, what is residual income? And how is this taxed? And if you don’t have this income stream, how can you obtain one?
In this article, we will explain what residual income is and how this works alongside passive income.
We’ll also provide some ways to get a residual income if you want more money after any expenses and costs. If you’re going to find out more about this type of income, read on to find out more.
Table of Contents
In Simple Terms, What Is Residual Income?
This type of income continues to receive after completing the work. Essentially it’s another way of saying side hustle income or passive income.
Examples of these would include royalties, rental income, interest and dividend income, and income from the ongoing sale of goods such as music, art, and books that you produce.
In the corporate finance world residual income is the income received after after paying all debts. It can be a measure of a companies performance as a company is judged by it’s income and what’s left after paying it’s debts.Â
In most terms residual income isn’t the result of a job and hourly wages, it does require some set-up and an initial investment with either time or money.
Residual income is seen as more of a net income measurement after considering all required costs of capital related to generating that income.
While residual income can be passive and looks more into how much discretionary income is available after all expenses are paid, not all types of passive income are residual.
Passive income can come from projects that take little effort to run but again face that initial investment.
How Is Residual Income Taxed?
Whether we refer to this income as passive or not, there are still tax obligations that you have to meet, but you might find them to be more beneficial to you, depending on your circumstances, of course.
Currently, if you start to generate a passive income, you can earn up to £1,000 tax-free if you already have a job.
If you don’t have another job, you can make up to £12,570 before you start paying tax based on the 2022-23 tax period, so you might want to check this figure for any fluctuations in future tax periods.
If you pass this figure, then you’ll have to pay 20% on anything between £12,571 and £50,270, then 40% on anything between £50,271 and £150,000, and 45% on anything over £150,000.
How To Earn Residual Income
Now you have an example of this type of income, one question could be how to generate some of this income for yourself, and we can’t blame you for wanting to make that extra little bit of cash.
Below we have provided some simple ways to generate income that might tap into those unused skills of yours or your intuition if you’re willing to do something bolder.
Sell Products Online
The most popular method to earn a semi-reliable source of income is semi-reliable, as this isn’t a watertight method and depends on what it is you’re selling.
You can use your passion for crafts or graphic design, and with some products, you only have to make them once, and you can keep printing the design to meet the demand.
There are also high-profit margins and flow charts that you can use to make the process even easier for you.
Create An Online Course
If there’s something that you are interested in and are knowledgeable in, you could possibly monetise your expertise and get income every time someone signs up.
You want to be aware, though, that this might take some time to set up where you’ll need to create a website to get started and get people interested in your course.
You’ll want to make it as easy to access as possible, and the general rule is that you get out of your work what you put into it.
Sell Used Belongings Online
Most of us have clothes, accessories, knick-knacks, books, and electronics sitting idly in our homes, gathering dust. The good news is that you could sell them on selling websites and could potentially make a profit.
If you’re looking for a continuous income stream, you could even rent out some of your items for others to use.
Still, you should know that these services will require a fee when advertising your items, so you will want to consider this when assessing your costs.
House-Sitting
This method might not be ideal for those who don’t have the means to travel but can offer a plethora of opportunities as you can see new places and all you have to do is water the plants, look after any pets or even collect the post.
You can also decide the duration of your sits to suit your lifestyle and any work commitments you have. All you have to do is set up a profile outlining your availability and you can request a sit if you wanted.
Conclusion
We could’ve mentioned investments, dividends, or rental income, but these options can take a monumental amount of time, research, and effort you have to put in.
What is important is now we have given you a clear definition of what this income is, you can earn more money and avoid disappointment when taxes are due. Thanks for reading.
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Disclaimer: Content on this page is for informational purposes and does not constitute financial advice. Always do your own research before making a financially related decision.
