The property income allowance is a tax exemption of up to £1,000 a year on gross income from land or property. If your property income is £1,000 or less before expenses, it is tax-free and you do not need to tell HMRC. If it is more, you can deduct a flat £1,000 instead of your actual expenses. That is worth doing only when your real costs are below £1,000. The allowance has applied since 6 April 2017. Each individual has one allowance, and it is separate from the £1,000 trading allowance.
How the property allowance works
The rules are in Chapter 2 of Part 6A of the Income Tax (Trading and Other Income) Act 2005, sections 783B to 783BQ. They give two forms of relief.
- Full relief. If your relevant property receipts for the tax year do not exceed £1,000, the receipts and the related expenses are simply left out of account. Nothing is taxable, and if you have no other reason to file, nothing needs reporting;
- Partial relief. If receipts exceed £1,000, you can elect to calculate profit as gross receipts minus £1,000. Actual expenses are then not deducted at all. The election is a choice, made year by year.
The test uses gross receipts, before any costs. A landlord with £1,400 of rent and £800 of costs is over the limit for full relief, even though the profit is only £600.
Who can use it, and who cannot
The allowance is for individuals. It covers ordinary property income, such as rent from a flat, a garage or a parking space, or occasional lettings. HMRC's Property Income Manual says receipts from UK and overseas property businesses are looked at together, so you get one £1,000 across both. Joint owners each get their own £1,000 against their share of the gross rent.
It is not available against:
- Income from your employer, or your spouse's or civil partner's employer;
- Income from a partnership where you, or someone connected to you, are a partner;
- Income from a close company in which you, or an associate of yours, are a participator. HMRC's guidance describes this as a company that you or someone connected to you owns or controls. It shuts out the common plan of a director renting space to their own company and claiming the allowance;
- Rent a Room income. Letting furnished rooms in your own home has its own scheme, with a threshold of £7,500, or £3,750 if the income is shared. You cannot use both on the same income;
- Any year in which you claim the finance cost tax reduction. If you take the 20% credit for mortgage interest on a residential let, the property allowance is not available for that year. This is section 783BL, and HMRC repeats it in its manual at PIM4460.
Allowance or actual expenses: which to choose
Once receipts pass £1,000, the decision is simple arithmetic. Compare £1,000 with your allowable expenses, and remember that mortgage interest is not an expense here. It goes through the separate finance cost credit, and claiming that credit rules out the allowance anyway.
Illustration only. You let a parking space for £2,400 a year and spend £300 on insurance and maintenance. Under partial relief, the taxable amount is £2,400 minus £1,000, which is £1,400. Deducting actual costs gives £2,100. The allowance saves tax on £700. Now suppose you let a flat for £12,000 with £3,500 of costs. Partial relief would leave £11,000 taxable against £8,500 by the normal route, so you would not use the allowance.
Three further points shape the choice:
- No losses. The allowance cannot be deducted beyond your income to create a loss. If your costs exceed your rent, claim expenses so the loss can be carried forward;
- No capital allowances or expense claims alongside it. Partial relief replaces all expenses for that property income for the year;
- Elections are reversible. You can elect for partial relief, or elect out of full relief, by the first anniversary of the normal Self Assessment filing date. For 2025/26, the online filing date is 31 January 2027, so the election deadline is 31 January 2028. Someone with £900 of rent and £1,500 of costs might elect out of full relief to record the loss.
Reporting: when you still need to tell HMRC
If gross property income is £1,000 or less and none of the exclusions applies, you do not need to report it. Above that, HMRC's guidance sets out the steps:
- Between £1,000 and £2,500 of rental income: contact HMRC, which will tell you how to report it;
- More than £2,500 after expenses, or £10,000 before expenses: you must report through Self Assessment and register by 5 October after the end of the tax year;
- If you already file a return, the property pages are where you claim the allowance, by deducting it from gross property income.
The HMRC guidance on the property and trading allowances is short and worth reading in full. For anything above the allowance, our guide to tax on rental income covers the full calculation and the 20% mortgage interest credit.
Does the 2027 property tax change affect it?
No. From 6 April 2027, Finance Act 2026 introduces separate property income rates of 22%, 42% and 47%. HMRC's technical note on the change says the property allowance remains unchanged. So does Rent a Room. The allowance will still remove up to £1,000 of gross receipts from tax. But if your income is above £1,000 and you use partial relief, the amount left over will be taxed at the new property rates from 2027/28. That makes the comparison with actual expenses worth repeating each year.
The allowance is mainly for small, incidental income: a driveway let through an app, a garage or a short occasional let. For a full buy-to-let it will rarely beat the actual costs. If you are unsure which route gives the lower bill, or whether an exclusion applies, our Self Assessment team can prepare the return and make the right election. Landlords with larger portfolios can use our accountants for landlords service.