How to Earn Tax-Free Income by Renting Out Your Garage

Why Rent Out Your Garage?

There’s growing demand for garage space, especially among tradespeople who need a secure place to store their tools overnight rather than leaving them in their vans at risk of theft.
If you have an unused garage, you could turn it into a steady income stream. Even better, you may be able to earn up to £1,000 a year tax-free.

The Property Allowance Explained

The property allowance is a tax-free allowance that lets individuals earn up to £1,000 in rental income each year without paying tax. This applies in addition to any tax-free earnings under the Rent-a-Room Scheme.

🔹 You can only claim one property allowance, no matter how many lettings you have.
🔹 It is separate from your personal allowance and, where relevant, your trading allowance.

How it Works:

• Rental income under £1,000: Tax-free and does not need to be reported to HMRC.

• Rental income over £1,000: You have two options:

  1. Deduct actual allowable expenses and calculate profit in the usual way.

  2. Deduct the £1,000 property allowance instead (useful if expenses are low).

Any taxable profit must be reported through a Self Assessment tax return.

Example 1: Lucy’s Garage

Lucy rents out her unused garage for £100 a month (£1,200 a year).

• Her expenses are £100.

• By using the property allowance, Lucy deducts £1,000 and declares a £200 taxable profit.

• If she had used actual expenses instead, she would have had to declare £1,100 profit, paying more tax.

👉 The property allowance saves Lucy money.

Example 2: James & Hannah

James and Hannah rent out their garage for £120 a month (£1,440 a year).

• They split the income equally, each receiving £720 annually.

• Since this amount is below £1,000 each, they can both benefit from the property allowance.

• The result? Their garage rental income is completely tax-free and doesn’t need to be reported to HMRC.

Key Takeaway

Renting out an unused garage can be a simple way to make extra cash. Thanks to the property allowance, you may be able to keep up to £1,000 tax-free each year.
If your income goes above this threshold, smart use of the allowance can still reduce your taxable profits.

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