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The Property Income Allowance Explained

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Categories Self Employment Tax

Wondering if you should claim the £1,000 property income allowance? In this guide, you’ll find out how the property income allowance works, how to claim it and work out whether it’s right for you.

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Friendly Disclaimer: Whilst I am an accountant, I’m not your accountant. The information in this article is legally correct but it is for guidance and information purposes only. Everyone’s situation is different and unique so you’ll need to use your own best judgement when applying the advice that I give to your situation. If you are unsure or have a question be sure to contact a qualified professional because mistakes can result in penalties.

1. What is the Property Income Allowance?

The Property Income Allowance entitles individuals in the UK to earn £1,000 in rental income tax-free every tax year. Those that fall into this category can choose to not tell HMRC about this income and don’t need to register as a landlord meaning they can avoid the need to submit a tax return if they have no other income to declare to HMRC.

Rental income means money earned before deducting any costs (in other words turnover, not profit).

2. How to Claim the £1,000 Property Income Allowance

How you claim the property income allowance depends on your personal situation.

If you do not currently complete a tax return then you don’t need to let HMRC know about your property income provided it is below £1,000. But you must keep records of your income to prove your income is below the £1,000 tax-free allowance. You should also keep an eye on your income because once it goes above the trading allowance you will need to register as a Landlord by 5 October.

If you are already registered for self-assessment for another reason, for example, because you are self-employed, then you’ll need to claim the property income allowance on your return. To claim the allowance you need to show your rental income in the Landlord Section, showing what you have collected and your claim for the tax-free amount.

3. Other Rules You Need to Be Aware Of

As with most income tax allowances you should make sure that claiming them is right for you and your situation both now and in the future. 

Here are some considerations you must take into account before deciding to use the Property Income Allowance:

  • If you own a property jointly with others, you’re each eligible for the £1,000 allowance against your share of the gross rental income;
  • You are entitled to claim for both the trading income allowance of £1,000 AND property income allowance of £1,000;
  • The allowance can be used towards foreign property rental income;
  • You cannot use the £1,000 tax-free allowance to generate a tax repayment;
  • If you are a new landlord who will have ongoing rental income, you may want to choose to claim your actual expenses to generate a tax loss which you can set off against your future business rental profits;
  • You cannot claim the property income allowance on income from letting your own home if you are claiming allowances under the Rent a Room Scheme.

4. Property Income Allowance Example

Example 1

During the tax year 2020/2021, you collect rental income of £1,750 from letting a property you jointly own. Your share of the income is £875 and are entitled to use the property income allowance of £1,000. That means you don’t need to pay tax on this income or register as a landlord with HMRC.

Example 2

You are a new landlord and during the tax year 2020/2021 you collected £500 in rent but spent £2,000 on property repairs.

You are eligible to claim for the £1,000 property allowance against your £500 rental income. But as your rental loss is £1,500 you may prefer to register as a landlord and record your tax loss using a tax return. That way you can use the loss against future profits from the rental property to save you tax in later tax years.

5. Can You Claim the Property Income Allowance and Expenses?

No, you can only claim the £1,000 tax-free property allowance OR your property expenses.

6. Can You Claim the Property Income Allowance and Trading Income Allowance?

Yes, you can claim for both the property income allowance and trading income allowance but depending on your circumstances you may need to claim this on a tax return.

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