Making use of the property income allowance

Property investors can earn a small amount of income from properties tax-free. Find out what the property income allowance is and how to claim it. Make sure you’re not missing out by reading this article.

The property income allowance allows you to earn a small amount of rental income tax-free each year. It is useful where the rent-a-room scheme does not apply (which is limited to the letting of furnished accommodation in your own home), and removes the need to report small amounts of rental income to HMRC.

The allowance

The property allowance is set at £1,000 per tax year.

Rental income of less than £1,000

Where the rental income received in the tax year is less than £1,000, the income is not charged to tax (unless you elect otherwise). The income does not need to be reported to HMRC and can simply be ignored for tax purposes.


Amanda lives near a popular concert venue and lets out a parking space on her drive. She earns rental income for the tax year of £640. As this is less than the property allowance, it is not charged to income tax and she does not need to report it to HMRC.

Rental income of more than £1,000

Where rental income exceeds £1,000, you can choose how you want to be taxed. You can deduct either your actual expenses or the £1,000 allowance from your rental income to arrive at your taxable profit.

If you decide to deduct the allowance, you must elect for this treatment to apply; otherwise you should deduct actual expenses when calculating your profit. You can choose which gives the best result.


Rohan is an artist and sometimes lets out space in his studio to other artists. In the tax year in question, he receives rental income from letting the studio of £2,000. His actual expenses are £500.

Calculating his profit in the usual way by deducting expenses would result in a taxable profit of £1,500. However, if he elects instead to deduct the property allowance, his taxable profit is reduced to £1,000. In this case an election is worthwhile.

Where the allowance is deducted, it is deducted from the total receipts for the property rental business, rather than on a property-by-property basis.

However, if actual expenses exceed your rental receipts, it is better not to claim the allowance and preserve the loss, which you can carry forward to set against future profits.

Splitting the allowance

If you have more than one relevant property business and want to claim the allowance, you can choose how it is split between your different property rental businesses.

Tax rules change frequently and whilst this article provides general guidance, it is not tax advice.

Did you know we offer an initial free tax consultation? Get in touch with the team to see how we can help.

You may also be interested in

    11 September 2023

    Inheritance Tax can seriously decay your wealth

    21 July 2023

    Avoiding an Investigation: What do HMRC look for?  

    10 March 2023

    Tax and Innovation, Research and Development

    06 March 2023

    How to claim a tax refund

    28 February 2023

    Alphabet shares for family companies

    16 February 2023

    Relief for replacement domestic items

    09 February 2023

    Do you need to pay the Annual Tax on Enveloped Dwellings by 30 April 2023?

    01 February 2023

    Doing up a property – Are you trading?

    20 January 2023

    When should a business leave a VAT scheme?

    09 January 2023

    Cryptocurrency transactions and HMRC

    09 December 2022

    How to claim tax relief for employment expenses

    23 November 2022

    Use simplified expenses to save work

View all insights