Making the most of new tax free allowances for trading and property income

25/04/2017

Two new tax-free allowances for trading and property income were introduced on 6 April 2017. The government has since published more detailed guidance on how to claim the allowances to provide clarity to those it benefits.

Individuals can now claim up to £1,000 a year tax-free for property or trading income. If they have both types of income they are entitled to a £1,000 allowance for each – a total of £2,000.

If gross income (the total amount you get before any allowance or expenses) is £1,000 or less, and you’re not registered for self-assessment, this income will not have to be declared on your tax return.

If you are registered for self-assessment, you can claim the allowances by deducting them from your gross property or trading income on your tax return. However, you cannot deduct expenses if you claim this allowance.

If you are not already registered for self-assessment, but have made a loss and want to claim the relief on your tax return, there is still the option to register.

The trading income allowance

The new trading income allowance of £1,000 is available to those with an income from:

• Self-employment
• Casual services – such as gardening or babysitting
• Hiring personal equipment

If your income is over £1,000 you will have the option of either:

• Calculating taxable profit in the usual way by deducting expenses from income, or;
• Deducting the £1,000 from your gross income instead of claiming the actual value of expenses.

The property allowance

The property allowance is a tax exemption of up to £1,000 a year for individuals with income from property.

If a property is jointly owned, each shareholder is eligible for the £1,000 allowance against their share of the gross rental income.

Any property income over £1,000 will need to be declared to HMRC and the allowance cannot be claimed if you are already claiming under the rent a room scheme.

Newly self employed

For those planning to start a self-employed business who anticipate their gross annual income to be less than £1,000 there is no need to register for self-assessment.

For further guidance on the new trading and property tax allowances please contact Paula Jeffs or Yogesh Dhanak