The aim of the property allowance is to provide simplicity
and certainty regarding income tax obligations on small amounts of income from
renting out property.

It is a £1,000 tax free allowance, and is available from
April 2017

What income does
the property allowance apply to?

The property allowance applies to relevant
property income which includes:

·        
Both UK and overseas property businesses;

·        
Both commercial and residential letting (but not
rent-a-room businesses – see below).

If an individual has more than one property business, for
example a UK and an overseas business, then the receipts of both trades are
combined with only a single £1,000 allowance available.

Full relief or partial relief?

At its simplest form, the property allowance provides for
full relief from income tax if an individual’s relevant property income
(turnover, not profit) in the year is less than £1,000.

Not only is there no income tax to pay, but also no need to register with HMRC or file
tax returns provided property income is below this level. Individuals
who qualify for full relief will, however, need to monitor their property
income year on year: if it goes above £1,000 they will be subject to
self-assessment.

We would still advise to keep some sort of record-keeping
for any properties in case HMRC should wish to view any

Where property income exceeds £1,000, the legislation
allows for so called partial relief. Effectively, individuals
can choose either to:

·        
Deduct
their actual property business expenses from their income in the usual way; or

·        
Elect
instead for the £1,000 property allowance as a deduction from income.

It should be noted that if you claim partial
relief you cannot deduct any other expenses, just the £1,000
allowance.

Individuals can decide on a year-by-year basis which
approach to take.

The best option will depend upon the level of expenses in
the property business.

Businesses with low outgoings (e.g. a single property
with no mortgage and few, if any, repairs) may be better off with partial relief.
However, if there is a large revenue expense in the year, for example a one-off
repair bill, it may be better to claim actual expenses.