The summer is a popular time for events and event parking is often limited. If you have a drive or field that you do not use, you could consider renting it out to make some money. This need not give rise to a tax headache.
However, it should be remembered that all income from renting UK property owned by the same person or persons forms a single UK property business. Consequently, if a person has other rental properties, rental income from renting a driveway cannot be considered in isolation; instead it forms part the income of the existing property business.
Nature of the property allowance
The property allowance is a ยฃ1,000 tax free allowance which enables an individual to earn tax-free income from property of up to ยฃ1,000 a year.
If property income is less than ยฃ1,000, there is no need to tell HMRC about it or to return it on the self-assessment tax return.
Example
Peter lives in Wimbledon. He has space on his drive for two cars in addition to his own car. During the Wimbledon fortnight he rents out each space for ยฃ30 a day. During Wimbledon 2022 he makes ยฃ720 from renting his drive.
He has no other income from property.
As the income from property is less than ยฃ1,000, he is able to enjoy it tax-free and does not need to report it to HMRC.
Income exceeds ยฃ1,000
An individual can still take advantage of the ยฃ1,000 property allowance even if their income from property is more than ยฃ1,000 in the tax year. The allowance can be deducted from the income to arrive at the taxable profit. This will be beneficial where the actual expenses are less than ยฃ1,000.
Example
Petra lives near a popular outdoor concert venue. During July and August she rents a parking space on her drive. In 2022, this generate her income of ยฃ1,500. She incurs expenses of ยฃ200 in advertising the space and associated administrative costs.
She has no other property income.
As her income exceeds ยฃ1,000, she must tell HMRC about it. However, she can take advantage of the property allowance to reduce the tax that she pays on that income.
If Petra does not claim the property allowance, her taxable profit will be ยฃ1,300 (rental income of ยฃ1,500 less expenses of ยฃ200). However, by claiming the allowance, she is able to reduce her taxable profit to ยฃ500 (rental income of ยฃ1,000 less property allowance of ยฃ1,000). Claiming the allowance will save her tax of ยฃ160 if she is a basic rate taxpayer and ยฃ320 if she is a higher rate taxpayer.
Expenses of more than ยฃ1,000
Claiming the property allowance will not be beneficial if associated expenses are more than ยฃ1,000. Where this is the case, it is better to deduct the actual expenses.
Example
Paul has a field that he is uses to offer event parking. In July 2022, he makes rental income of ยฃ8,000. He also incurs expenses of ยฃ1,200 on staff and admin costs.
If he calculates his rental profit in the usual way, his taxable profit is ยฃ6,800 (ยฃ8,000 – ยฃ1,200). However, if he claims the property allowance, his rental profit increases to ยฃ7,000 (ยฃ8,000 – ยฃ1,000). Claiming the property allowance is not worthwhile.
Losses
It is also better not to claim the allowance where deducting expenses from rental income would give rise to a loss so as to preserve the loss. The deduction of the allowance cannot create a loss. However, this will involve some administration and completion of the return. Consequently, if rental income is less than ยฃ1,000 and there is little opportunity to use the loss, claiming the property allowance may be the preferred option.
Partner note: ITTOIA 2005, ss. 783B โ 783Q.
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