The following Owner-Managed Businesses guidance note Produced by Tolley provides comprehensive and up to date tax information covering:
The £1,000 allowances for property and trading income were introduced from 2017/18 onwards. This guidance note considers the property allowance, although commentary is included in relation to the trading allowance, if relevant. For full details of the trading allowance, see the Trading allowance guidance note.
The property allowance works in a similar way to rent-a-room relief, in that the first £1,000 of gross property income is exempt from income tax. If the income exceeds £1,000, the taxpayer has a choice of:
deducting the £1,000 property allowance from their gross income and being taxable on the excess, or
deducting allowable expenses from gross property income in the normal way
The trading allowance and property allowance are mutually exclusive. Therefore, it is possible for the individual to have £1,000 of gross trading receipts (which must include miscellaneous receipts) and £1,000 of gross property receipts, and the entire £2,000 would be exempt from income tax.
The property allowance is of most benefit to micro-entrepreneurs, such as those letting property through sites such as Airbnb, although it is worth considering whether rent-a-room relief applies as the relief is more generous, see the Rent-a-room relief guidance note.
Although not explicitly branded as a making tax digital measure, the property allowance removes reporting obligations for those with low levels of second income, which is a welcome simplification. It also means that those who are accidentally non-compliant may no longer face penalties.
The property allowance is set at £1,000 and can only be amended by secondary legislation, meaning it is unlikely that the level of the allowance will be up-rated annually. As such, the value of the allowance is likely to be eroded over time by inflation.
The property allowance applies to the total ‘relievable receipts’ from any ‘relevant property business’ carried on by the individual. The definition of these terms is key.
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