Property Income Allowance

What is the Property Income Allowance?

The property income allowance is a tax exemption of up to £1000 per year for landlords who rent out property or land. Basically, you can earn up to £1000 in gross income from your property or land rental without having to pay tax, or even report it to HMRC. If you have multiple rental properties, you cannot claim £1000 per property – the allowance applies to your total property income from all sources.

How does Property Income Allowance Work?

You can deduct this £1000 allowance from your property rental income, or you can deduct eligible business expenses from your profits, whichever is more profitable to you. If you use this allowance, you can deduct up to £1000 from your taxes, but not more than the amount of your income. If your expenses are more than your income, it would be more beneficial to claim expenses instead of allowances. Expenses include property maintenance, repairs (although not general wear and tear), marketing and advertising costs, legal and accountant’s fees, insurance, and other costs like travel.

How to Claim Property Income Allowance

If you do not currently need to complete a tax return, you don’t need to declare income of less than £1000 to HMRC, although you should keep records of your income to prove it is below the £1000 tax-free allowance. If you are already registered for self-assessment or pay taxes through a limited company, you will need to claim the property income allowance on your tax return. Keep records of your income including copies of invoices, receipts, emails, bank statements, bank deposit records, or anything that details income received from a tenant or customer. You can keep these records on paper or in electronic format – it’s probably easier to have a spreadsheet or similar electronic document that you can easily access and edit. However you keep your records, it is your responsibility to ensure they are accurate and readable by others to avoid the potential of a penalty from HMRC.

If you jointly own a property with someone else, you can both claim the £1000 property income allowance. If you have another business or source of income, you can also claim the £1000 trading income allowance as well as the property income allowance. If you own property overseas, you can use the property income allowance towards income from them. You cannot use your £1000 tax-free allowance to generate a tax payment, meaning that it can only reduce your taxable rental income to £0 – it cannot create a tax refund. In other words, the allowance helps reduce your taxable income but does not work like a tax credit that gives you money back.

Can You Claim Property Income Allowance and the Rent a Room Scheme?

Put simply, you cannot claim both Rent a Room relief and the property tax allowance – this may vary depending on your individual circumstances. For example, if you rent out a room in your own home, you can claim up to £7,500 per year in Rent a Room relief. You cannot also claim property income allowance on this same rental income. However, if you were to also rent out a parking space at your property, you may be able to claim property income allowance on the income from this. As always, I recommend you consult with your accountant or another property tax specialist to confirm your tax obligations to ensure you are paying the correct amount in taxes.