Two new annual tax-free allowances of £1,000 for property and trading income have taken effect from 2017/18 onwards, designed to make life easier for micro–entrepreneurs who may be selling their own products online or renting out a room on Airbnb.
The property allowance is available for both UK and overseas property businesses consisting of both commercial and residential lettings. In simple terms, it provides for full relief from income tax if an individual’s property income before expenses in the year is less than £1,000.
Partial relief is available where property income is more than £1,000 and works by allowing individuals to either deduct £1,000 from gross rental income or calculate the rental profit in the normal way. Taxpayers can choose whichever option gives the lowest tax liability.
If the property is owned jointly, each individual can claim the £1,000 allowance against their share of gross rental income.
The trading allowance is available for small amounts of trading or miscellaneous income from providing goods, services or other assets, and applies where total income is less than £1,000. Partial relief is available where income is in excess of £1,000.
There are a few exceptions to this relief but it mainly applies where your income is generated by a family owned company or a spouse.
What are the advantages of these reliefs then? Well most importantly, there is an exemption from income tax on these sources of income. Therefore no requirement to register with HMRC which removes the burden of annual tax returns.
Overall however, this simple initiative will let small, budding entrepreneurs with low levels of income avoid the burden of tax compliance and enable them to test the water where looking to potentially start a full time business.
For more information, please contact Jill Walker (firstname.lastname@example.org) or your usual AAB contact.