Taxpayers can claim the property income allowance, which came into effect in April last year, giving the property owner £1,000 of tax relief on their rental income, provided they have few or no expenses. The allowance is worth up to £1,000 each tax year in tax-free allowances for property or trading income from 6 April 2017.
‘Depending on circumstances, this can be a fairly generous tax break for individuals who rent out their property, including land owners, for example farmers. A basic rate taxpayer can save up to £200, while higher rate taxpayers can save up to £400 by claiming the allowance,’ said Annalise Lovett FCCA, partner at chartered accountants Newby Castleman.
‘Because many landlords and property owners fill out their own tax returns, they may well have overlooked the property income allowance, especially as it only came into effect last year, and the 2017/18 tax return is the first time it can be claimed.’
The new allowance can be particularly beneficial to joint owners of property and land, for example married couples, as both parties are able to claim the allowance, ie, up to £1,000 each.
Where the allowance covers 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 allowance does not apply to partnership income from carrying on a trade, profession or property business in partnership. They cannot be used in conjunction with the relief available under the rent-a-room relief rules.
Lovett said: ‘It’s a relatively straightforward way of claiming back a potentially generous amount from the taxman, and if you’re completing your own tax return it might be easy to miss.’
The relief was introduced as part of Finance Act 2017, and introduced a new Part of Income Tax (Trading and Other Income) Act 2005 (ITTOIA 2005), to give relief for two new annual tax allowances for individuals of £1,000 each, a trading allowance and a property allowance.