Trading Allowance:

The trading allowance is a tax exemption of up to £1,000 a year for individuals with trading income from:

  • Self-Employment
  • Casual services, for example, babysitting or gardening.
  • Hiring personal equipment, for example, power tools

If the annual gross income of an individual is £1,000 or less, he or she need not inform HMRC. However, the information to HMRC is required if,

  • Gross trading income over £1,000 – register for Self Assessment
  • Other gross income over £1,000 up to £2,500 – contact HMRC
  • Other income over £2,500 – register for Self Assessment

This allowance does not apply to trading income from a partnership.

Property Allowance:

The property allowance is a tax exemption of up to £1,000 a year for individuals with income from land or property. If an individual owns a property jointly with others, each individual is eligible for the £1,000 allowance against his share of the gross rental income. If the annual gross property income is £1,000 or less, he need not inform HMRC, unless he cannot use the allowances. If it’s higher, he needs to declare his property income. Individuals cannot deduct more than the amount of their income and create a loss.

An individual must inform HMRC if he has:

  • Gross property income over £1,000 up to £2,500 – contact HMRC
  • Property income over £2,500 – register for Self Assessment

If an individual has two businesses and claimed the property allowance in one, He cannot claim actual expenses in respect of the other business. He cannot use this allowance on income from letting a room in his own home under the Rent a Room Scheme.

The Rent-a-Room Scheme:

The Rent a Room Scheme lets an individual earn up to a threshold of £7,500 per year tax-free from letting out furnished accommodation in his home. This is halved if he shares the income with his partner or someone else. There is no restriction on the part of the house that can be let out.

How it works

The tax exemption is automatic if an individual earns less than £7,500. This means he does not do anything.

If he earns more than this he must complete a tax return

He can then opt into the scheme and claim his tax-free allowance. This is to be done in a tax return. However, an individual can choose not to opt for this scheme and record his income and expenses in his Tax return.


An Individual can opt into the scheme at any time if:

  • He is a resident landlord, whether or not he owns the home.
  • He runs a bed and breakfast or a guest house

He cannot use the scheme for homes converted into separate flats.