The £1000 allowances for property and trading income came into force with effect from 2017/18 onwards. The trading income allowance also covers miscellaneous income from the provision of assets or services.
The allowances work in a similar way to rent-a-room relief, in that the taxpayer has choices based on the level of gross trading or property income in the tax year:
- Income of £1000 or less – either the income is exempt from income tax or the taxpayer can choose to disapply the allowance and calculate the profit or loss under normal business income principles.
- Income of more than £1000 – either the profit or loss is calculated under normal business income principles or the taxpayer can elect to deduct the £1000 allowance from his gross income and be taxed on the excess
The allowances are of most benefit to micro-entrepreneurs, such as those with secondary incomes from:
- Letting property through sites such as Airbnb, although it is worth considering whether rent-a-room relief applies as that relief is more generous
- Trading via e-marketplaces: however, remember that those selling their old possessions are unlikely to be trading
The allowances are set at £1000 and can only be amended by secondary legislation, meaning it is unlikely the level of the allowances will be up-rated annually. As such, the value of these allowances is likely to be eroded over time by inflation.