Property income allowance: how the £1,000 tax-free allowance works

The property income allowance is a £1,000 yearly tax-free allowance for income from land and property. It is aimed at people with small amounts of property income, such as renting out a driveway, a parking space, a garage or a storage unit, or letting a property for a short time.

The £1,000 is measured on your gross property income. That means the total you receive before taking off any costs. It is a single allowance per person for all your property income, not £1,000 per property. If you own a let property jointly, each owner can use their own allowance against their share.

It is separate from the £1,000 trading allowance, which covers small self-employed income such as selling or freelancing. You can have both in the same year if you have both kinds of income.

How the allowance works depends on whether your gross property income is above or below £1,000.

Here are three hypothetical examples using round numbers.

Example 1: driveway rental. Say you rent your driveway to a commuter for £800 a year and spend £100 on signage. Your gross income of £800 is below £1,000, so it is all covered by the allowance. There is no tax to pay and nothing to report for this income.

Example 2: low costs. Say you let a garage for £3,000 a year and your costs are £400.

The allowance gives the lower profit, so it is the better choice. For a basic rate taxpayer, that saves £600 x 20% = £120 of tax compared with claiming expenses.

Example 3: higher costs. Say you let a small flat for £6,000 a year and your allowable costs are £2,500.

Here claiming actual expenses gives a profit £1,500 lower, which saves £300 of tax at 20% or £600 at 40%.

A simple rule: if your allowable expenses for the year are more than £1,000, claiming expenses usually gives the lower profit. If they are less than £1,000, the allowance usually wins. Claiming expenses is often the better route when:

• You let a whole property and pay letting agent fees, insurance, repairs and service charges.
• You had a large repair in the year, such as a new roof covering or boiler.
• Your costs are higher than your income. Claiming expenses creates a loss you can carry forward against future property profits. The allowance cannot create a loss.
• You have mortgage interest on a residential let. Landlords get a 20% tax credit for finance costs, and you should check how your choice affects it before using the allowance.

Most landlords letting a full house or flat will be better off claiming expenses. Our landlord tax return guide lists the costs you can claim and explains the 20% mortgage interest credit.

The Rent a Room scheme is a different relief for letting furnished accommodation in your own home, such as a lodger in your spare room. It lets you earn up to £7,500 a year tax free from that letting. The limit is shared if someone else in the home also receives income from letting it.

You cannot use both reliefs against the same income. If you have a lodger and also have other property income, such as a separate garage you rent out, it is worth checking which relief applies to each before you file.

If your gross property income is £1,000 or less and the allowance covers it all, you usually do not need to tell HMRC about it. You may still need a tax return for other reasons, for example self-employed income.

If your gross property income is more than £1,000, you need to tell HMRC, usually through a Self Assessment return, even if you then use the allowance to reduce the profit. You claim the allowance on the property pages of the return. For lodger income over £7,500, you need a return to use Rent a Room relief.

1. 1

   Register if you are new to Self Assessment

   Register by 5 October after the end of the tax year you first had the income.

2. 2

   Keep a record of income and costs

   Even if you plan to use the allowance, keep your figures so you can compare both methods.

3. 3

   File and pay by 31 January

   The 2025/26 online return and any tax due must reach HMRC by 31 January 2027.

Not sure whether you need a return? See do I need to do a Self Assessment and the Self Assessment deadline guide.

Making Tax Digital for Income Tax requires some landlords and sole traders to keep digital records and send quarterly updates to HMRC. Whether you must join depends on your qualifying income: your gross rent plus any self-employed turnover, before expenses. Because it is based on gross income, using the property allowance does not reduce the figure that counts.

It applies from 6 April 2026 if qualifying income is over £50,000, from 6 April 2027 if over £30,000, and from 6 April 2028 if over £20,000. Most people whose only property income is small will not be affected. Read Making Tax Digital for landlords if your rent is closer to these levels.

Add up your gross property income for the tax year. If it is £1,000 or less, you are usually done. If it is more, compare the allowance with your actual expenses and use whichever leaves the lower profit.

If you would like us to check the numbers and file the return for you, our landlord accounting service has fixed monthly fees from £99. We start with a free 20-minute chat and confirm your exact price in writing within one working day. Get in touch when you are ready.