Thinking of letting out your driveway during match day? Or maybe renting your home while you’re away on holiday? Thanks to the property allowance, you could earn up to £1,000 a year in rental income without paying any tax—and in many cases, without even needing to tell HMRC.
Here’s how it works, when it applies, and how to make the most of it.
What Is the Property Allowance?
The property allowance gives individuals the chance to earn up to £1,000 in property income each tax year completely tax-free. That means:
- No tax to pay
- No need to report it to HMRC
- No paperwork if your total rental income is under £1,000
It’s a great option for those dipping their toes into property income—for example, occasional Airbnb lets, renting a spare room during festivals, or hiring out parking spaces.
What If You Earn More Than £1,000 in Rental Income?
If your rental income exceeds £1,000 in the tax year, you still have two options:
- Use the property allowance – You can deduct the £1,000 allowance from your total rental income instead of your actual expenses. This is ideal if your expenses are less than £1,000.
- Deduct your actual expenses – If your costs are higher than £1,000, you’ll probably be better off ignoring the allowance and claiming your real expenses instead.
Either way, once you go over the £1,000 threshold, you’ll need to report the income to HMRC.
How Do You Report It to HMRC?
Currently, if you earn more than £1,000 in rental income, you’ll need to submit a Self Assessment tax return—even if you’re using the allowance.
However, HMRC has announced plans to make this easier. Before the end of this Parliament, the threshold for filing a Self Assessment return just for property income is expected to rise to £3,000.
Once this change kicks in, if you earn between £1,000 and £3,000, you’ll be able to report it through a new online digital service, rather than submitting a full tax return. That said, if you’re already filing a return for other income, you can continue to report rental income through Self Assessment.
What If You Make a Loss?
Here’s something many landlords miss.
If your rental income is under £1,000, but you make a loss, you might want to report it anyway.
Why? Because reporting the loss allows you to carry it forward and offset it against future rental profits. But if you claim the £1,000 allowance instead, you can’t preserve the loss—so think carefully about your choice.
When the Allowance Doesn’t Apply
It’s important to note that the property allowance can’t be used in every situation.
For example, if you’re a director and your company pays you rent for using your home as an office, you can’t use the allowance to shelter that income. In that case, normal rental rules and deductions apply.
Want to Make the Most of Tax-Free Property Income?
Whether you’re letting out your home occasionally, renting your drive, or starting a side hustle in property, the £1,000 property allowance can be a great way to earn tax-free income with minimal admin.
Got questions about what you can claim or whether you should report your income?
Get in touch with Jon or the team today and we’ll help you make the most of your allowances—without getting on HMRC’s radar.
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Any questions?
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