New Tax allowance for Trading and property income
From 6 April 2017 two new allowances have become available – the trading allowance and the property allowance.
The trading allowance in simple terms, allows an individual to earn up to £1,000 without having to declare this amount or pay tax on it. Not only will this save an individual tax, but the hassle of registering with HMRC and filling a tax return.
Any individual qualifying for this allowance must monitor their income, if their income goes over £1,000 in the year, they will be obligated to register for self-assessment with HMRC and file a tax return. This allowance is beneficial for individuals who sell goods on eBay.
If an individual’s income is in excess of £1,000, there is an option to claim partial relief. An individual can choose to either; deduct their business expenses from their income or elect to use the £1,000 trading allowance as a deduction from income. If you claim partial relief you cannot deduct any other expenses, just the £1,000 allowance. The approach an individual wishes to take can be decided each year.
There are a few occasions were the trading allowance cannot be claimed. This cannot be claimed for partnerships trades, or if they are claiming rent a room relief.
There is no relief available if an individual’s trading income includes any amounts received from an employer, or a partner’s employer, a close company in which they are a participator.
For the purposes of the trading allowance, the income and profits of all an individual’s trades are combined. This can lead to difficulties if an individual with an existing sole-trade business starts a smaller second trade. This may result in an unequal situation whereby an individual can receive unlimited income from employment or a partnership and still claim the trading allowance, but an existing sole-trader is unlikely to benefit from the allowance.
The property allowance applies to income from commercial and residential lettings on both UK and overseas property. If an individual has more than one property, the income is combined and only one £1,000 allowance is available. This may be beneficial for individuals involved in renting property through Airbnb.
Like the trading allowance, individuals claiming the property allowance may be entitled to full or partial relief. These reliefs are calculated by the same method for both allowances.
As mentioned, if an individual is claiming relief under the rent-a-room scheme, they are not eligible to claim the £1,000 property allowance. Firstly, the rent-a-room scheme is more generous, therefore making it the obvious choice to claim, secondly the property allowance will not apply if rent-a-room relief is available and not elected.
Leanne Humphrey
