LANDLORD TAX GUIDE

The property income allowance: when £1,000 is worth claiming.

If you earn a small amount from land or property, the first £1,000 a year can be tax-free. Above that, you can still use the £1,000 instead of claiming your real costs. This guide explains how it works, who cannot use it, and how to tell which option leaves you paying less tax.

Figures for the 2026/27 tax year · Last reviewed 21/10/2026

What the property income allowance is

The property allowance is a tax exemption of up to £1,000 a year for individuals with income from land or property. It has been available since 6 April 2017. It covers things like letting a driveway, a garage, a parking space, a bit of land, or a whole property.

There is a separate £1,000 trading allowance for small trading income. If you have both kinds of income, you get £1,000 for each.

The allowance works in one of two ways, depending on how much you earn.

Full relief. If your gross property income is £1,000 or less in the tax year, all of it is covered. You do not need to tell HMRC about it or put it on a tax return, as long as nothing stops you using the allowance.
Partial relief. If your gross property income is more than £1,000, you can deduct £1,000 from it instead of deducting your actual expenses. You pay tax on what is left.

Gross income means the full amount you receive, before any costs come off. It is not your profit.

The key choice: £1,000 or your real expenses

Once your income is over £1,000, you cannot have both. You either deduct the flat £1,000, or you deduct the allowable expenses you actually paid. So the question is simple. Are your real costs for the year more or less than £1,000?

Costs under £1,000. The allowance gives you a bigger deduction. It also saves you working out and evidencing each cost.
Costs over £1,000. Claiming your actual expenses gives you a bigger deduction, so it usually means less tax.
Costs higher than your income. The allowance cannot take your income below zero or create a loss. If you have a loss, you would need to claim your actual expenses to record it.

You make the choice each tax year. A year with low costs might suit the allowance, and a year with a big repair might not.

Three made-up examples

These examples are hypothetical. They show the arithmetic only and assume the person pays Income Tax at the basic rate of 20%.

Example 1: a driveway. Priya lets her driveway to a commuter for £80 a month. That is £960 for the year. It is under £1,000, so full relief applies. She has no tax to pay on it and does not need to report it, unless she has another reason to file a return.

Example 2: a garage. Tom lets a garage for £1,800 a year. His costs are £300. If he claims expenses, £1,500 is taxable, so the tax is £300. If he uses the allowance instead, £800 is taxable, so the tax is £160. The allowance saves him £140.

Example 3: a flat. Sam lets a flat for £9,600 a year, with £2,700 of allowable running costs. Claiming expenses leaves £6,900. Using the allowance would leave £8,600. Expenses are clearly better here. And if Sam has a mortgage and claims the tax credit for the interest, the allowance is not available at all.

Who cannot use the property allowance

The allowance is meant for genuinely small or simple property income. You cannot use it in a tax year where you have property or trading income from:

A company that you, or someone connected to you, owns or controls
A partnership where you, or someone connected to you, is a partner
Your employer, or your spouse's or civil partner's employer

You also cannot use the property allowance if you:

Claim the tax reducer for finance costs, such as mortgage interest on a residential property
Deduct expenses from rent-a-room income instead of using the Rent a Room Scheme

The finance cost rule catches out many landlords. If you have a buy-to-let mortgage, the tax credit on the interest is often worth more than the allowance anyway. But you cannot claim both, so it is worth comparing before you file.

Property allowance vs the Rent a Room Scheme

Letting a furnished room in your own home is treated differently. The Rent a Room Scheme lets you earn up to £7,500 a year tax-free. If you share that income with someone else, such as a partner, the limit is halved to £3,750 each.

The property allowance cannot be used for income from a room in your own home under the Rent a Room Scheme. For a lodger, Rent a Room is normally the relief to look at first, because its limit is much higher. The scheme cannot be used for a home that has been converted into separate flats.

Joint owners each get their own £1,000

If you own a property with someone else, each owner can use the £1,000 allowance against their own share of the gross rent. Each person also makes their own choice between the allowance and their share of the real expenses.

So a couple who jointly let a parking space for £1,600 a year, split equally, would each have £800 of gross income. That is under £1,000 each, so both could get full relief. The test is on each person's share, not the total.

When you need to tell HMRC

If your gross property income is £1,000 or less and the allowance applies, you usually do not need to report it. You may still need to file a tax return for other reasons, such as other untaxed income.

Above £1,000, GOV.UK sets out these steps for rental income:

More than £1,000, up to £2,500. Contact HMRC.
More than £2,500 after allowable expenses, or more than £10,000 before expenses. Report it on a Self Assessment tax return.

If you do not usually send a tax return, you need to register for Self Assessment by 5 October following the end of the tax year in which you had the rental income. For the 2026/27 tax year, which ends on 5 April 2027, that is 5 October 2027. If you are already registered, you simply deduct the allowance on your return.

Some landlords will also come into Making Tax Digital for Income Tax, depending on their qualifying income. Our guide to Making Tax Digital for landlords covers who is affected and when.

Keep records even when you claim the allowance

Using the flat £1,000 does not mean you can stop keeping records. You still need a record of the rent you received, because the allowance depends on your gross income. HMRC can charge a penalty if records are not accurate, complete and kept for the required period. See how long to keep business records for the time limits.

It also pays to keep your expense records. You cannot tell whether the allowance or real costs give the better result unless you know what your costs were. A simple running list of rent in and costs out, kept through the year, makes the comparison a two-minute job at year end.

Other effects of using the allowance

Deducting a flat allowance instead of your real costs can change the income figure used for some other purposes. GOV.UK's guidance on the allowances names tax credits, the High Income Child Benefit Charge, student loan repayments and Married Couple's Allowance. It also says income for Universal Credit is not affected by the allowances. If any of these apply to you, check how your income figure is worked out before you choose.

Is the property allowance worth claiming?

A quick way to decide:

Is your gross property income £1,000 or less? Then full relief is likely to apply and there may be nothing to report.
Are your real allowable costs below £1,000? Then the allowance usually gives the bigger deduction.
Do you claim the tax credit on mortgage interest, or have income from your employer, your own company or a partnership? Then you cannot use it.
Do you let a room in your own home? Look at the Rent a Room Scheme instead.
Do you have a loss? Claim actual expenses so the loss is recorded.

For a single buy-to-let with a mortgage, letting agent fees and repairs, the allowance rarely wins. For a driveway, a garage, a storage unit or a small piece of land, it often does. If your letting is growing into a portfolio, see our page on bookkeeping for landlords.