Trading and Property Allowances
From the 2017/18 tax year onward, HMRC have introduced a trading allowance and a property allowance of £1,000 each. These allowances work in a similar way to rent-a-room relief, meaning that the taxpayer has the choice to deduct either the relevant expenses from gross receipts, or the £1,000 allowance, not both.
The allowances are going to be most beneficial for individuals who have small secondary sources of income, such as renting out driveways, Airbnb or selling items on online marketplaces such as eBay.
However, there are certain exclusions from using these allowances including:
- Income from the individual’s employer, or the employer of their spouse/civil partner
- Income from a partnership where the individual, or a connected party to the individual, is a partner
- Income from a close company which the individual, or someone connected to the individual, owns or controls
The question I get from a lot of my clients is: ‘Would I be better off using the property allowance, rather than deducting small expenses for my rental business?’. The answer, which us tax advisers love using, is ‘it depends!’
Property Allowance
The £1,000 property allowance can be used against:
- UK and overseas property business income
- Residential and commercial property letting income (excluding rent-a-room relief)
Main points:
If the individual’s gross receipts from these activities is < £1,000 then they can claim full relief and do not have to register for Self-Assessment with HMRC.
If an individual owns a property jointly (excluding in a partnership – see above), then they are allowed the full £1,000 allowance on their share of the gross receipts.
If an individual owns both UK and overseas property, then the receipts of both trades have to be combined with only one £1,000 allowance.
Individuals can decide on a year-by-year basis which approach to take, meaning that if there are high repairs one year it may be best to claim expenses, however if there were low expenses the next year they may wish to claim partial relief meaning you cannot deduct any expenses other than the £1,000 allowance.
Trading Allowance
The £1,000 trading allowance can be used against gross receipts from:
- ‘Relevant trade’ – all self-employed income
- Miscellaneous income for providing assets or services, not otherwise taxable in statute
Main points:
If the individual’s gross receipts from these activities is < £1,000 then they can claim full relief and do not have to register for Self-Assessment with HMRC.
If an individual has more than one trading business, then the gross income from all of these trades is combined.
The individual can choose how to allocate the allowance between the income from relevant trades and miscellaneous income.
The election for the allowance must be submitted by the first anniversary of 31st January following the tax year. If you would like any further information on these allowances please speak to one of our team who would be happy to help.
If you wish to speak to a member of our team, please contact us.