Making good use of the £1000 property allowance
A new property allowance of £1,000 was introduced from 6 April 2017. The allowance means that individuals with income from property of less than £1,000 do not need to pay tax on that income. Further, they do not need to tell HMRC about it. The allowance is available in addition to the personal allowance (and other allowances, such as the marriage allowance, to which the individual is entitled).
Consequently, when filling in the 2020/21 self-assessment tax return, any income from property of less than £1,000 can be ignored – there is no need to complete theproperty pages.
Where property income is more than £1,000, the taxpayer has a choice as to how profits are worked out.
If an individual has income from property, the profits for the property business can be worked out by deducting the £1,000 allowance from the rental income, rather than deducting the actual expenses. This will be beneficial where actual expenses are less than £1,000. It can also reduce the need to keep a record of expenses.
Max lets out a flat for which he receives rental income of £600 per month. The flat is let throughout 2020/21 and Max receives rental income for the year of £7,200.
His actual expenses for the year are £650.
Max works out his profit for the year by deducting the £1,000 allowance from the rental income of £7,200 – leaving him with a taxable rental profit of £6,200.
This is a better result for Tony than deducting actual expenses as this would have resulted in a higher profit of £6,550.
Deducting the allowance will not always be the best option. If actual expenses are more than £1,000, deducting accrual expenses rather than the £1,000 allowance will result in a lower profit – and less tax.
Guy receives rental income of £500 a month from letting out a studio in 2020/21. His total rental income for the year is £6,000. His expenses for the year are £2,000. Deducting the actual expenses leaves a taxable profit of £4,000, whereas if he had instead claimed the allowance of £1,000, his taxable profit would have been £5,000.
It is not possible to claim both the £1000 property allowance and rent-a-room relief for the same income. Where rent-a-room relief is available, this will trump the property allowance.
However, if the individual also has another source of income which does not qualify for rent-a-room relief, the allowance can be claimed in respect of that.
Mary lets out her spare room to a lodger as furnished accommodation, receiving rental income of £3,600 in 2020/21.
She also lives near a concert venue and rents out her drive for parking, receiving income of £810 in 2020/21.
She claims rent-a-room relief in respect of the let of her spare room and the property allowance in respect of the income received from letting out her drive.
Where a property business makes a loss, the loss can be carried forward and set against future profits from the same property business. If rental income is less than £1,000 but expenses exceed income (so that there is a loss), aside from the admin involved, it is better to claim the loss rather than take advantage of the allowance, as this may save tax in the future. However, if the amounts involved are very small, it may not be worth the hassle.