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Earn tax-free income from renting out your garage

August 5, 2025

There is a demand for garage space, particularly from tradespeople who want somewhere to store their tools safely rather than leaving them in their van overnight and vulnerable to theft. If you have a garage that you are not using, you could potentially earn money from renting it out. Even better, you may be able to enjoy rental income of up to £1,000 a year tax-free.

The property allowance

The property allowance is a tax allowance which enables a landlord to earn rental income of £1,000 a year tax-free (in addition to any tax-free rental income under the Rent-a-Room scheme). An individual is only allowed one property allowance regardless of how many lettings they have. The allowance is available in addition to the personal allowance and, where relevant, the trading allowance.

Where rental income for the tax year is less than £1,000, the income is tax-free and does not need to be reported to HMRC. Where rental income exceeds £1,000, the landlord can choose either to work out their rental profit in the usual way by deducting allowable expenses from the rental income or deduct the property allowance instead. This will be beneficial where allowable expenses are less than £1,000. The rental profit is taxable and must be reported to HMRC on the landlord’s Self Assessment tax return.

Example 1

Lucy has a garage that she does not use. She rents it out for £100 a month. Her rental income is £1,200 per year. Her allowable expenses are £100. She has no other rental property.

It is beneficial for Lucy to take advantage of the property allowance and deduct this from her rental income, which will give her a rental profit of £200 on which tax will be payable at her marginal rate of tax, assuming her personal allowance has already been used. Had she instead deducted her actual expenses, her taxable rental profit would have been £1,100.

Example 2

James and Hannah have recently purchased their first home. To help make ends meet, they decide to rent out their garage for £120 a month (£1,440 a year). The income is split equally and they each receive £720 a year. As this is less than the property allowance, they can enjoy the income tax-free and do not need to report it to HMRC.

Tax free income

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