In our latest tax tips email for accountants we said:
This week we look at what you need to know about the two new £1,000 trading and property income allowances, which are due to take effect retrospectively from 6 April 2017. We also look at the definition of a commercial vehicle for income tax purposes, which could be useful for clients who drive what they believe are vans. Finally, we share news about the new trusts registration service, and why clients should be cautious of income trusts.
Below is just an extract from that email. To receive the full email when it is published each Thursday, simply follow the link on the right (or below, if you’re reading this on a mobile device)
New £1,000 allowances
The second Finance Bill for 2017 is on its way through Parliament, and it’s expected to be passed by Christmas. This Bill contains almost all the provisions which were cut out of the first Finance Bill 2017 before the General Election, including the provisions for £1,000 annual allowances for property and sundry income.
These two allowances work in a very similar way. The default position is that the allowance covers gross income before expenses of up to £1000, and that income is treated as nil, in the taxpayer’s tax computation.
The taxpayer is not required to claim the allowance, but he can elect for the allowance not to apply, by first anniversary of normal SA filing deadline. In this case the allowance is not is not given, and the taxpayer deducts allowable expenses in the normal way, and pays tax on any net profits.
The taxpayer can also elect for partial relief of the allowance, in which case the £1000 allowance is treated as a flat deduction, and any gross income over that amount is taxable.
Neither allowance can be set against income that would qualify for rent-a-room relief, or against partnership income. The property income allowance can’t be set against income from residential property where the interest restriction applies from 6 April 2017.
Also, neither allowance can be used against payments to the taxpayer from his employer or from the employer of his spouse or civil partner. Similarly, the allowance can’t be set against payments from a close company, where the taxpayer is a participator in that company or an associate of a participator. This prevents the allowances being exploited to extract a further £2,000 pa tax free out of the taxpayer’s own company.