What is the property income allowance?

Definition of property income allowance

The property income allowance (also known as the property allowance) is a tax relief or exemption of up to £1,000 per tax year for individuals who have to declare the income they earn from property or land ownership to HMRC.

How to determine if you have to declare income from property

You need to declare your property income to HMRC by completing and filing a Self Assessment tax return if the income you earn from property during a tax year is above £2,500. If your gross property income is between £1,000 and £2,500, you should contact HMRC to find out if you need to declare the income.

If your property income during a tax year is £1,000 or less, you will not normally need to declare the income to HMRC. If you’re in any doubt about whether or not you need to declare your property income, we recommend that you speak to an accountant.

Who can use the property income allowance?

The property income allowance is available to most taxpayers who have to declare income from property to HMRC. In cases where a property is owned by more than one person, each owner is eligible for the property income allowance against their share of property income.

Taxpayers who are eligible to claim the property income allowance should enter the amount they wish to claim when they complete their Self Assessment tax return for the tax year in question. 

Who can’t use the property income allowance?

There are certain situations in which individuals who earn income from property can’t use the property income allowance.

If you let a room in your own home under the Rent a Room Scheme then you can’t use the property income allowance on the income you earn from it. 

You can’t use the property income allowance during a tax year in which you earn property or business income from any of the following sources:

  • a company that’s owned or controlled by you or someone connected to you 
  • a partnership in which you or someone connected to you is a partner
  • your employer or the employer of your spouse or civil partner

Finally, you can’t use the property income allowance if you: 

  • claim (or intend to claim) the tax reduction for finance costs for a residential property
  • deduct (or intend to deduct) expenses from the income you earn from letting a room in your own home

You can find more information about expenses for landlords in our dedicated guide. More information about the property income allowance is available on the government’s website.

Making Tax Digital for landlords

From 6th April 2024, Making Tax Digital (MTD) for Income Tax legislation will apply to landlords whose combined property and/or business income is £10,000 or more a year.

These landlords will be required to use compatible accounting software to keep digital business records and send quarterly submissions, an end-of-period statement and an annual final declaration to HMRC. For affected landlords and business owners, this will replace the current process of completing an annual Self Assessment tax return. 

Find out more about how Making Tax Digital for Income Tax will affect landlords.

Disclaimer: The content included in this glossary is based on our understanding of tax law at the time of publication. It may be subject to change and may not be applicable to your circumstances, so should not be relied upon. You are responsible for complying with tax law and should seek independent advice if you require further information about the content included in this glossary. If you don't have an accountant, take a look at our directory to find a FreeAgent Practice Partner based in your local area.

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