Glossary

Property income allowance

Krishna Prasad Dahal, Chartered Accountant

Reviewed by Krishna Prasad Dahal FCCA, ACA (ICAEW), FCA (ICAI India)ICAEW Council Member · Last reviewed

Definition

The property income allowance (often called the property allowance) is a £1,000 tax-free allowance each tax year for individuals with income from land or property, such as renting out a driveway or garage. If gross property income is £1,000 or less, you normally do not need to tell HMRC. If it is more, you can deduct £1,000 instead of your actual expenses when working out taxable profit.

When it cannot be used

  • On income from letting a room in your own home under the Rent a Room Scheme, which has its own £7,500 limit
  • If you claim the tax reducer for residential finance costs such as mortgage interest (see Section 24)
  • On property income from a company you or a connected person controls, a partnership you or a connected person belongs to, or your (or your spouse’s or civil partner’s) employer

Allowance or actual expenses?

Sam rents out a driveway near a station for £1,800 a year and has £150 of costs. The allowance leaves £800 taxable, against £1,650 using actual costs, so the allowance wins. A landlord with repairs, letting fees and mortgage interest will usually be better off claiming actual expenses and the finance cost reduction.

The allowance works like the equivalent £1,000 trading allowance, and you can use both in the same year. For larger lettings, SmartFiling’s landlord accountant service prepares rental figures and returns.

Related questions

  • Do I need to file a Self Assessment tax return? Above £1,000 you must tell HMRC, and a return is required once rental income reaches £2,500 after expenses or £10,000 before.
  • Can I use the property allowance with rent-a-room relief? Not on the same income.

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