If you earn a small amount from property — renting a parking space, letting a garage, or the occasional short let — the £1,000 property income allowance can mean you pay no tax and don’t have to tell HMRC at all. Above £1,000, it can still cut your bill, but only if it’s worth more than your real costs.
This guide explains how the allowance works, the two ways to use it, and the situations where you’re better off ignoring it.
What is the property income allowance?
The property allowance is a tax-free amount of up to £1,000 a year for income from land and property. It’s based on gross income — the rent you receive before any costs — not your profit.
- Gross property income of £1,000 or less: it’s fully covered. You don’t need to report it or pay tax on it.
- Gross property income over £1,000: you must report it, but you can choose to deduct the £1,000 allowance instead of your actual expenses.
Allowance or expenses: which should you choose?
Once you’re over £1,000, you pick one of two methods each year:
- Method 1: deduct your actual allowable expenses from the rent.
- Method 2: deduct the flat £1,000 allowance, and claim no expenses at all.
Worked example
Amir rents out a parking space and a lock-up garage for £2,400 a year. His real costs — business rates share, insurance and a repair — total £450.
- Actual expenses: £2,400 − £450 = £1,950 taxable
- Property allowance: £2,400 − £1,000 = £1,400 taxable
The allowance saves Amir tax on £550 of income. As a rule of thumb, the allowance wins when your genuine expenses are below £1,000.
When the allowance is the wrong choice
- Your expenses are higher than £1,000. A typical buy-to-let with agent fees, insurance and repairs will almost always do better claiming actual costs.
- You’d make a loss. The allowance can’t create or increase a loss. If your costs exceed your rent, claim expenses so you can carry the loss forward.
- You have mortgage interest. If you use the allowance, you can’t also claim the 20% finance cost tax credit for mortgage interest.
Who can’t use the property allowance?
You can’t use it against income from:
- A partnership you’re a partner in
- A company you or someone connected to you controls
- Your employer, or your spouse or civil partner’s employer
- A room let under the Rent-a-Room scheme — you use one or the other, not both
Jointly owned property
If you own a property with someone else, each owner gets their own £1,000 allowance against their share of the income. Two joint owners each receiving £900 a year would both be fully covered.
How the property allowance interacts with the trading allowance
The property allowance is separate from the £1,000 trading allowance for self-employed income. If you have both a small side hustle and a small amount of rental income, you can use both. Our guide to the trading allowance explains that one.
How to claim it
If your gross property income is £1,000 or less and you have no other reason to file, do nothing. If it’s over £1,000, register for Self Assessment by 5 October after the tax year ends. Then claim the allowance on the UK property pages (SA105) of your return.
If you’re in Making Tax Digital for Income Tax, the property allowance is claimed through your MTD software instead.
Not sure which method saves more?
SmartFiling’s ICAEW chartered accountants check both methods for you and file your return for a fixed fee. See our Landlord Accountant service or get a free quote — we reply within one working day.
Frequently asked questions
Is the £1,000 property allowance per property?
No. It’s per person, across all your property income for the year.
Do I need to tell HMRC about rent under £1,000?
No, unless you’re already filing a return and want to claim a loss, or HMRC has asked you to file.
Can I switch methods each year?
Yes. You can choose whichever method gives the lower tax bill in each tax year.
