BIM40520 - Domestic microgeneration: Income tax exemption for domestic microgeneration
With effect from tax year 2007-08, ITTOIA/S782A provides an exemption from income tax for an individual’s income from the sale of electricity generated by a microgeneration system where:
- the system is installed at or near domestic premises occupied by the individual, and
- the individual intends that the amount of electricity generated by the microgeneration system will not significantly exceed the amount of electricity consumed in those premises.
For the purpose of this exemption domestic premises means premises used wholly or mainly as a separate private dwelling.
A microgeneration system is defined in section 4 of the Climate Change and Sustainable Energy Act 2006.
This exemption in aimed at domestic microgeneration which is primarily intended to match the generator’s own home consumption needs. The term significantly exceed is not defined in ITTOIA/S782A and should be considered by reference to the particular circumstances. However, in general, a householder who does not intend to generate an amount of electricity more than 20% in excess of their own domestic needs is unlikely to be regarded as intending to significantly exceed the amount of electricity consumed in their own premises.
No income tax will therefore arise on feed-in tariffs received by an individual from domestic microgeneration where the microgeneration system is located at or near their home and the individual intends that the amount of electricity generated will not significantly exceed their own consumption.
The exemption may apply where an individual installs a microgeneration system at a property which is not the individual’s main residence provided that the other domestic property is used by the individual, wholly or mainly, as a separate private dwelling and the other conditions for the exemption are met.