Trading and property allowances

These £1,000 annual allowances were introduced by F(no 2)A 2017, and backdated to apply from 6 April 2017. However, the detailed guidance on exactly how each allowance works has only just been published in HMRC’s Business Income Manual (BIM) and the Property Income Manual (PIM).

The trading allowance and miscellaneous income allowance (TMIA), and the Property Income Allowance (PIA) operate in a similar fashion, but on different categories of income received by individuals. The PIA can’t apply to rental income which qualifies for rent a room relief. Also neither allowance can be set against income from a connected party, such as a close company in which the taxpayer is a participator or an associate of a participator, or a partnership in which he is a partner or connected with a partner.

Where the qualifying income, before deduction of expenses, is no more than £1000 per year, he will automatically be given full relief, and the trading or property income is treated as nil. The taxpayer also is relieved from having to report that income to HMRC.

If the taxpayer doesn’t want the allowance to be set against his qualifying income, he must make an election for it not to apply. This may be the desired outcome where the taxpayer has made a loss, after deduction of expenses, which he wishes to set against his other income (for a trade), or carry the loss forward or back.

If the taxpayer’s gross qualifying income is more than £1,000 he can opt in to be given partial relief and not deduct any expenses, or not elect for the allowance not to apply at all and then deduct all allowable expenses as normal.

These elections are made as part of the taxpayer’s SA return, so you need to watch out for the opting out and opting in elections when completing the 2017/18 returns.

Trading income allowance guidance

Property income allowance guidance

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