Renting Out Your Drive – What are the Tax Implications?

Sarah Bradford considers the pros and cons of an extra rental income opportunity.  

If you live in the centre of a town or city, or near a railway station, airport or sports venue, you may be able to earn some easy money by renting out your drive for parking. There are various online sites where you can list your parking space and find customers. 

Unfortunately, the taxman will want his cut of any rental income that you earn from renting out parking spaces on your drive. From a tax perspective, money earned from renting out a parking space is treated in exactly the same way as any other rental income from property in the UK.

For tax purposes, all sources of income from land and property in the UK are generally regarded as deriving from the same single property rental business. This applies equally to any income that is derived from renting out a parking space or parking spaces on your drive, or indeed other land that you own. This means that if you have any other let property or land you rent out in the UK, the income and expenses associated with letting out your drive are combined with the income and expenses from other let property to calculate the profit or loss for the business as a whole. Tax is payable by reference to any overall profit for the property rental business as a whole, rather any profit derived from renting out your drive when considered in isolation.

Sophie lives near a mainline station and decides to make some additional money from renting out a parking space on her drive. In 2013/14, she earns £5,000 in rental income and incurs allowable expenses of £850.

Sophie also owns two flats which she lets out.  The rental income and allowable expenses in relation to each flat are as follows:

Flat	Rental income	Allowable expenses
Flat 1	12,000
		6,000
Flat 2	13,200
		5,475

Rental income:	£	£
Flat 1	12,000
Flat 2	13,200
Parking space	5,000
	30,200
Less: allowable expenses:
Flat 1	6,000
Flat 2	5,475
Parking space	850
	(12,325)
Net profit	£17,875

Sophie pays tax by reference to the net profit for the UK property business of £17,875. There is no need to separately work out the profit or loss from renting out her drive.

By contrast, if you decide to rent out your drive but do not rent out any other property or land in the UK, the letting of the drive will constitute a new UK property rental business. The profit or loss of that business will be the profit or loss from renting out the drive.

Sophie’s neighbour Polly decides to follow her example and rent out a parking space on her drive. In 2013/14, she earns rental income of £4,750 and incurs allowable expenses of £800. She has no other rental income from UK land or property. 

Her UK property rental business comprises only the income and expenses incurred in relation to the letting of her drive. The net profit is therefore £3,950 (i.e. £4,750 - £800). She must pay tax on this.

If at some future date Polly decides to let out other property or land in the UK, the new let will form part of her existing UK property rental business and the income and allowable expenses must be amalgamated with the income and expenses associated with the let of the drive to calculate the profit or loss for her UK property rental business as a whole.

When working out the taxable profits of the UK property rental business, relief is given for any expenses of a revenue nature which are incurred wholly and exclusively for the purposes of the property rental business. Where a driveway is let out for parking purposes, it is likely that expenses will be incurred which can be taken into account in working out of any profit.

Relevant expenses would include the costs of advertising to find customers, any commission paid (for example to online sites that match homeowners willing to rent out their drive with potential customers), legal fees, for example, in drawing up agreements, insurance costs, accountancy fees and such like.

Records of expenses should be maintained, and receipts retained.

Remember to take account of all allowable expenses incurred in relation to the letting of the drive when working out the taxable profit for the UK property rental business.

Relief is not available against profits for any capital expenditure, such as resurfacing the drive.

Any profit is liable to income tax at your marginal rate of tax. Tax is generally payable under the self-assessment system. The tax is due by 31 January after the end of the tax year to which it relates. However, if your total liability under self-assessment is £1,000 or more, payments on account must be made on 31 January in the tax year and 31 July after the end of the tax year, with any outstanding balance being paid by 31 January after the end of the tax year.

If your total income from property is less than £2,500 and you are employed or have a taxable pension, HMRC may be able to collect any tax due through the PAYE system via an adjustment to your tax code. If this applies to you, you will need to complete form P810 (which you can get by calling your tax office and asking them to send it to you) and return it to HMRC.

If you rent out your drive and do not already have another source of property rental income or you complete a self-assessment tax return, you will need to register for self-assessment by 5 October following the end of the first tax year in which the drive is first rented out. Details of income from UK property (including that from letting out your drive) are returned on the property income pages of the self-assessment return. 

If your income from property is more than £15,000, you will need to complete the main self-assessment return. This must be filed online by 31 January after the end of the tax year to which it relates. If you prefer to complete a paper return, an earlier deadline of 31 October applies.

If your income from property is less than £15,000, you may be able to complete the shorter four-page tax return instead. Contact HMRC if this applies to you and you do not have any other income taxable under self-assessment.

As noted above, if your income from property is less than £2,500, as may well be the case if you let out your drive on an occasional basis, you may be able to complete the tax review form (P810) instead and have any tax collected via an adjustment to your tax code.

If you make an overall loss in relation to your UK property rental business (or in relation to the letting out your drive if you have no other UK rental land or property) you can carry it forward and set the loss against future profits from the same UK property rental business. However, a loss of this nature cannot be relieved against other sources of income, such as income derived from a trade or an employment.

The fact that the results from all let UK property owned by the same person are combined and treated as one business for tax purposes means that where a loss is made on one property it is automatically relieved against a profit on another property. 

Although the main residence exemption for capital gains tax (CGT) purposes extends to gardens (of a reasonable size) and driveways associated with the home, if the drive is let out exclusively the benefit of the exemption is lost in relation to it and any proportionate gain relating to the drive will fall within the scope of CGT. While the annual exemption remains available, this is unlikely to be a problem in practice. 

Thus beware of CGT implications of renting out part of your drive on an exclusive basis.

Avoid CGT problems by ensuring that the letting of the drive is on a non-exclusive basis, and that the drive is used for private purposes for some of the time.

Renting out parking space on your drive can be an easy way to earn some additional money. However, make sure you do not overlook the associated tax implications.