Small property income

Hi there. It’s Louis Herrington from Performance Accountancy. And this video is all to do with low-value property allowance.

What’s that? I hear you say.

Well, it’s something that’s been knocking around since April 2017, and it basically comes into play, and the aim is to simplify around small amounts of property income from, obviously renting a property. It applies to UK and overseas property, and it doesn’t matter whether it’s commercial or residential letting. It does not apply to rent a room, that’s already got its own allowance. So put that to one side, rent a room. This is purely on the rental of a property. And it’s only allowed one lot of £1000 property income per individual in the tax year. Okay.

So what it’s saying is, if you have income of £1000 in a tax year for some property, you do not have to declare it on a tax return. You don’t have to register with HMRC and therefore you are not taxed on that income.

So what type of income are we talking about? Well, it could be a lockup garage. If it could be less than £1000 a year, quite possibly, sometimes it might be £40 a month, sometimes it might be £200 a month. But a rental of a lock-up garage, rental of a driveway, for people to park on your drive.

If you don’t have a car, but you have a driveway and you’re in an area where there is lots of traffic and commuter, then you might find, “Hey, let’s rent the driveway out.” So, have a think about things like Wimbledon. It’s like there’s loads of people wanting to park their car and not pay an extortionate fee for parking somewhere. So why not rent your driveway? You don’t have a car, it’s in no use, get some money out of it.

Or you might rent your property on Airbnb whilst you go on holiday. So you lob the property up on Airbnb, earn less than £1000 potentially, and you’ve got a bit of money whilst you go on holiday. You never know, it may even pay for your holiday.

But it is an allowance that needs to be checked every year, because it might be a case of one year, you’re below the amount, and next year you’re above. If you actually go above the £1000 of income from property, you do need to register as a landlord at HMRC. Okay?

It might be a case of, you rent out the property or the land or the garage, et cetera, and you do earn slightly more than £1000 pounds, register at HMRC, but there are two ways of dealing with that extra amount. So, below here we have given an example. So a rental of a garage at £100 a month brings you in an income of £1200 a year. You go, “Oh no, that’s above the limit. I must register with HMRC.” So register with HMRC, not a problem, fairly easy to do. Just Google, how to register for self-assessment, and providing you go for the, there wouldn’t be any issues. We can help you through it if you need to.

So, you’ve rented your garage at £1000 a month… A £1000 a month? Ooh! £100 a month, and the only expense you have is advertising that garage at let’s say £50. So you have a profit of £1,150. You have two options now. You still have to do a self-assessment tax return, but the first option is you treat it as property income, in the property section. So you declare your income of £1200, your expenses of £50, giving you a profit of £1,150. You then get taxed at 20% of that, and so that gives you a tax bill of… Drum roll, please. £230 pounds. Okay? So that’s quite a bit of tax to pay on such a little bit of money. But what you can do, is you can elect to have the rental income and the £1000 property allowance.

So here we go. We have the rental income of £1200. We have £100 property allowance, and that gives you a profit for the year of £200. You then take off 20% tax of £40. And that’s a lot better than having to pay £230. An awful lot better. It’s a nice little saving really.

So, for this rental income, that trick could work, even if you had £1200 rental income, and up to £999 of expenses, you would still be better off to declare the complete rental income and then declare the property allowance, giving you a small base for the tax to be based on. So, definitely for that example, go for the partial allowance. But if it’s less than £1000 you don’t have to register and Bob’s your uncle, don’t to pay any tax on it. I like that one.

So again, any problems, please drop an email and I’m sure one of us can help here. The best email address is [email protected].


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