How do the property and trading allowances work in practice?

December 3, 2018|In KRW Q&A|By Keith Witchell

In April 2017 the government introduced two new £1,000 per annum tax-free allowances in relation to property and trading income.

So, how do these allowances work in practice?

Starting with the property allowance, this allows income of up to £1,000 from property letting activity (for example Airbnb) to be exempt from tax.

In addition, the allowance means that those with property income below this level don’t have to register for self-assessment to declare the income to HMRC. They can simply keep a record of the income that demonstrates that it is covered by the property allowance.

If your property income exceeds £1,000 per annum you have the option of offsetting the property allowance and paying tax on the balance. However, doing this means that no expenses can be claimed – the allowance therefore being claimed instead of related expenditure.

Turning to the trading allowance, this allows ‘trading’ and miscellaneous income of up to £1,000 per annum to be received without incurring a tax bill, or needing to file a self-assessment tax return.

As with the property allowance above, if trading or miscellaneous income exceeds £1,000 per annum, then you have the option of either offsetting the £1,000 trading allowance, or offsetting any associated expenses instead.

There are a number of anti-avoidance provisions in place to avoid abuse of these allowances, which specifically exclude the availability of the reliefs against, for example, any income from someone’s employer or from a business in which they are a proprietor, partner or Director/shareholder.

It is, however, possible to claim both allowances where relevant, as the two allowances operate separately.

Key Facts

  • Property and trading allowances allow up to £1,000 per annum of tax-free income
  • Where income under £1,000 no need to declare it via self-assessment
  • If income exceeds £1,000 you can either offset the allowance, or any related expenses
  • It is possible to claim both allowances, where relevant, but watch out for anti-avoidance rules

For further advice on this matter, please contact me.

Keith Witchell