The aim of the property allowance is to provide simplicity and certainty regarding income tax obligations on small amounts of income from renting out property.
It is a £1,000 tax free allowance, and is available from April 2017
What income does the property allowance apply to?
The property allowance applies to relevant property income which includes:
· Both UK and overseas property businesses;
· Both commercial and residential letting (but not rent-a-room businesses – see below).
If an individual has more than one property business, for example a UK and an overseas business, then the receipts of both trades are combined with only a single £1,000 allowance available.
Full relief or partial relief?
At its simplest form, the property allowance provides for full relief from income tax if an individual’s relevant property income (turnover, not profit) in the year is less than £1,000.
Not only is there no income tax to pay, but also no need to register with HMRC or file tax returns provided property income is below this level. Individuals who qualify for full relief will, however, need to monitor their property income year on year: if it goes above £1,000 they will be subject to self-assessment.
We would still advise to keep some sort of record-keeping for any properties in case HMRC should wish to view any
Where property income exceeds £1,000, the legislation allows for so called partial relief. Effectively, individuals can choose either to:
· Deduct their actual property business expenses from their income in the usual way; or
· Elect instead for the £1,000 property allowance as a deduction from income.
It should be noted that if you claim partial relief you cannot deduct any other expenses, just the £1,000 allowance.
Individuals can decide on a year-by-year basis which approach to take.
The best option will depend upon the level of expenses in the property business.
Businesses with low outgoings (e.g. a single property with no mortgage and few, if any, repairs) may be better off with partial relief. However, if there is a large revenue expense in the year, for example a one-off repair bill, it may be better to claim actual expenses.