If your garage is sitting unused, you could be missing out on an easy way to make extra income — completely tax-free.
From tradespeople needing secure overnight tool storage to small business owners looking for extra space, garage rentals are in demand. And thanks to the Property Allowance, you could earn up to £1,000 a year from renting yours out without paying any tax.
Here’s how it works.
What Is the Property Allowance?
The Property Allowance is a tax relief that allows individuals to earn up to £1,000 a year from property-related income without paying tax or reporting it to HMRC.
It applies to:
- Rental income from land or property (e.g. garages, driveways, storage sheds)
- Informal or occasional lettings
- Income from property not covered by the Rent-a-Room scheme
You’re only allowed one property allowance per individual, regardless of how many rental activities you have.
When Is the Income Tax-Free?
There are two key scenarios where the allowance is helpful:
✅ 1. Rental Income Is Less Than £1,000 Per Year
If your total property income for the tax year is £1,000 or less, it’s completely tax-free — and you don’t even need to report it to HMRC.
✅ 2. Rental Income Exceeds £1,000 Per Year
If your income is over £1,000, you can choose to:
- Deduct the £1,000 allowance instead of your actual expenses
- OR deduct your actual expenses in the usual way
This gives landlords the flexibility to pick the option that results in the lowest tax bill.
Real-Life Examples
🔹 Example 1: Lucy earns over £1,000
Lucy rents out her unused garage for £100/month, totalling £1,200/year. Her allowable expenses are just £100.
Best option: Use the Property Allowance
- £1,200 income – £1,000 allowance = £200 taxable profit
If she claimed expenses instead, her profit would be £1,100. The allowance saves her tax.
🔹 Example 2: James and Hannah split the income
James and Hannah jointly rent out their garage for £120/month or £1,440/year, split equally.
Each earns £720/year, which is under the £1,000 threshold.
Result:
- The income is tax-free
- No need to report it to HMRC
When You Do Need to Report It
You must report your garage rental income if:
- It exceeds £1,000 and you choose to claim actual expenses rather than the allowance
- Your total property income (from all sources) is over £1,000 and you don’t opt to use the allowance
- You wish to declare a loss to carry forward
In these cases, the income and expenses must be recorded in your Self Assessment tax return.
Can You Claim the Allowance if You Also Use Rent-a-Room Relief?
Yes — both allowances can apply, but not to the same income.
- Rent-a-Room Relief applies to furnished rooms in your main residence
- The Property Allowance applies to all other rental income, including garages, outbuildings, driveways, and storage spaces
You just can’t apply both to the same letting activity.
What About Joint Ownership?
If a garage is jointly owned (e.g. by a couple), each owner gets their own £1,000 allowance. This means:
- If the total income is £2,000, split equally, both can claim their £1,000 allowance
- If their share is less than £1,000, it’s completely tax-free
Final Thoughts
If you have an empty garage, shed, or outbuilding, renting it out could be a hassle-free way to boost your income — and in many cases, you won’t pay a penny in tax.
Thanks to the Property Allowance, you can earn up to £1,000 each year without dealing with tax returns or HMRC. Just be sure to keep good records of how much you receive — and check annually whether the allowance or claiming expenses gives you the best result.
Need advice on how to declare rental income or whether you’re eligible for the allowance? At Yorkshire Accountancy, we’re happy to help. From tax planning to property income support, we make tax simple.
