Q- My client has a rental property from which he only receives a small amount of income, he has heard about the new £1000 property allowance and wonders if he can make use of this?
A- The property allowance of £1000 was introduced in the Finance Act (No. 2) 2017. The legislation can found in ITTOIA2005 s783B to S783BQ.
This new allowance is available from
6 April 2017 and applies to both commercial and residential lettings, regardless of where they are situated. The property allowance, in its basic form, provides full relief where an individual’s relevant property income (not the profit) is less than £1000. Where property is held in joint names then each individual owner is entitled to the allowance.
Property income needs to be monitored on a yearly basis as if it arises above £1000 and there is a resulting profit it is taxable. It should be noted that the property allowance does not apply to rent-a-room receipts. Where an individual has more than one rental business, perhaps one in the UK and one overseas there is still only one property allowance of £1000 available for use.
Partial relief, which has to be elected, is available where the relevant property income exceeds £1000. An individual can choose to either calculate their profits in the normal way by deducting the actual property expenses from the income or elect to deduct the £1000 property allowance from the income (this will be more beneficial for those with expenses below £1000).
An election has to be made on or before the first anniversary of the 31 January following the tax year for which the election is being made. Individuals can decide each year which method to use, for example, in years where there are large repair bills it is likely it will be better to claim the actual expenses.
There are, however, exclusions when the allowance cannot be claimed. These include when money is received from their employer, a connected partnership or a close company in which they are either a participator or an associate of a participator. Full details of all of the exclusions can be found in the legislation.