Tax allowances for property and trading income introduced from 6 April 2017

Two new annual tax allowances for  property and trading income for individuals of £1,000 each will take effect from the tax year 2017/18.

The new tax allowances for property and trading income cover all of an individual’s relevant income (before expenses) then they will no longer have to declare or pay tax on this income. Those with higher amounts of income will have the choice, when calculating their taxable profits, of deducting the allowance from their receipts, instead of deducting the actual allowable expenses. The trading allowance will also apply for Class 4 National Insurance contribution purposes.

The new allowances will not apply to partnership income from carrying on a trade, profession or property business in partnership.

Legislation in Finance Bill 2017 will introduce a new Part of ITTOIA 2005, to give relief for the two new annual tax allowances.

Broadly the allowances work as follows; where an individual’s trading or property income is less than the allowance, full relief will be given so that the income is not charged to tax, unless the individual elects otherwise.

Where the individual’s trading or property income is more than the allowance, the individual may elect for an alternative method of calculating the income. The election for the trading or property allowance are made independently and apply for each particular tax year.

The new allowances will apply to all types of property and trading income of an individual but not to partnership income from carrying on a trade, profession or property business in partnership where special rules in Part 9 of ITTOIA 2005 apply.

The trading and property allowance will not apply to income on which rent a room relief is given. It will also not apply, if the alternative method is not elected, but instead the actual allowable expenses are deducted.

The new allowances may provide certainty to individuals in receipt of small amounts that will not need to be declared to HMRC.  The trading allowance possibly benefiting ‘micro entrepreneurs’ earning minimal amounts from auction sites such as Ebay.  The property allowance being utilised by individuals renting their own homes on short term lets, via such platforms as Airbnb, and also those letting out garages, parking spaces and small plots of land.

 If you have any queries on the new tax allowances for property or trading income please do get in touch.