New Income Tax allowances
In the 2016 Budget, the then Chancellor, George Osborne, announced that he would be introducing two new £1,000 tax allowances for property and trading income. The new allowances will come into force from April 2017.
The scope of the tax allowance was increased somewhat by the new Chancellor as part of the Autumn Statement 2016 when it was announced that the trading allowance will also apply to certain miscellaneous income from providing assets or services. This change was introduced to reduce complexity for some individuals who will no longer have to decide if the activity amounts to a trade or not.
The £1,000 exemptions from tax will apply to:
- Individuals who make up to £1,000 from trading such as selling goods they have made, and
- the first £1,000 of miscellaneous income from providing assets or services, for example renting a driveway.
Where each respective allowance covers all the individual’s relevant income (before expenses) the income will be tax-free and does not have to be declared. Taxpayers 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. However, the exemption for property cannot be claimed in addition to the current rent-a-room scheme. Government figures have suggested that up to 700,000 taxpayers could benefit from this new allowance.