The property allowance is a tax exemption of up to £1,000 a year for individuals with income from land or property.
The property allowance applies to relevant property income which includes:
- Both UK and overseas property businesses.
- Both commercial and residential letting (but not rent-a-room businesses – see below).Where property income exceeds £1,000, the legislation allows for partial relief. Effectively, individuals can choose either to:
- If an individual has more than one property business, for example a UK and an overseas business, then the receipts of both trades are combined with only a single £1,000 allowance available.
- Deduct their actual property business expenses from their income in the usual way, or
- Elect instead for the £1,000 property allowance as a deduction from income.Individuals can decide on a year by year basis which approach to take. The best option will depend upon the level of expenses in the property business. Businesses with low outgoings (e.g. a single property with no mortgage and few, if any, repairs) may be better off with partial relief. However, if there is a large revenue expense in the year, for example a one-off repair bill, it may be better to claim actual expenses.You must tell HMRC if you have:
- If your annual gross property income is £1,000 or less, you won’t need to tell HMRC. If it’s higher, you’ll need to declare your property income.
- It should be noted that if you claim partial relief you cannot deduct any other expenses, just the £1,000 allowance.
- gross property income over £1,000 up to £2,500 – contact HMRC
- property income over £2,500 – register for Self Assessment
You can’t use this allowance on income from letting a room in your own home under the Rent a Room Scheme.
If you use the property income allowances you must still keep a record of your income.
Examples of the records you may need to keep are:
- copies of your invoices, paper or electronic
- a record of your income receipts
- emails confirming income and expenditure
- bank statements