Can you use the property income allowance and Rent a Room?
The rise of the ‘micro-entrepreneurs’ coupled with daunting and complex tax rules spurred the Chancellor on to announce the new property and trading income allowances in his Budget 2016 speech yesterday.
People who make up to £1,000 from occasional jobs such as sharing power tools, providing a lift share or selling goods they’ve made on eBay for instance, will no longer need to pay tax on that income.
In the same way, the first £1,000 of income from property, such as renting a driveway or loft storage will also be tax free.
Above this amount, you’ll need to declare the income via a tax return.
But under the government’s ‘Rent a Room’ scheme, owner occupiers and tenants can receive a tax free rental income if you provide furnished accommodation in your only or main home, such as through Airbnb.
Currently, you can earn up to £4,250 tax free each year from taking in a lodger.
But this figure will rise to £7,500 from 6 April 2016 – a significant increase which will see landlords and those who rent out a room in their home not pay any tax on their rental income.
Does this mean I can have the property income and ‘Rent a Room’ allowance?
The Treasury confirmed that these are two separate schemes so you can’t use both on the same source of income.
As an example, if you rent out a room in your property, you wouldn’t be able to have the £1,000 income from property in addition to the Rent a Room £7,500 tax-free income (currently £4,250).
But if for instance you rent out your driveway, you can earn up to £1,000 tax-free from the new property and earn up to £7,500 from the ‘Rent a Room’ scheme if you let out a room in your property.