When you let one or more furnished rooms in your own home, the rental income can be free of tax if it is covered by rent – a – room relief, currently capped at £7,500 per year. But this relief only applies where the room is used as residential accommodation.
If the room is used as an office, for storage or perhaps as a garage or parking space on your drive, rent – a – room relief does not apply. In those cases, the rental income can now be tax free if it does not exceed £1,000 per year and the conditions for this new property income allowance apply.
You can’t use the property income allowance to boost the tax – free rent from residential accommodation to £8,500 per year, as the allowance can’t apply if rent – a – room does.
Where your non – residential let brings in more than £1,000, you can choose to deduct the allowance from your gross rents or to calculate the taxable rental income deducting allowable expenses, but ignoring the allowance. When you use the property allowance you can’t also deduct expenses.
Where the rent is paid by your own company, or by a company that employs you or a family member, you can’t use the property allowance against that income.