The £1,000 property allowance explained

How small amounts of rental income can be tax-free, and when to tell HMRC.

The short answer

If you earn a small amount from renting out property, the £1,000 property allowance can mean you pay no tax on it. If your gross rental income is £1,000 or less, you generally do not need to tell HMRC. If it is more, you can deduct £1,000 instead of your actual expenses, but not both. For selling things or casual services as a side business, the equivalent is the trading allowance, covered in our side hustle tax guide.

How it works

Gross income of £1,000 or less: the income is tax-free and you generally do not need to report it.
Gross income over £1,000: you can deduct the allowance (up to £1,000, and not more than your income) from your income instead of deducting your real expenses. You cannot claim both.
Joint owners: each owner gets their own £1,000 allowance against their share.

"Gross" means your income before any expenses are taken off.

Example: you rent out a driveway and a garden shed for £1,800 in the year. With the allowance, £800 is taxable. If your real expenses were £300, deducting them would leave £1,500 taxable, so the allowance is better. If your real expenses were £1,200, claiming them would leave £600 taxable, so actual expenses are better.

When you cannot use it

The income comes from a company you, or someone connected to you, own or control.
The income comes from a partnership where you or someone connected to you is a partner.
The income comes from your employer, or the employer of your husband, wife or civil partner (and the same applies to the trading allowance).
You claim the tax reducer for finance costs on residential property, such as mortgage interest.

Rent a Room is separate

If you let a furnished room in your own home, the Rent a Room scheme lets you earn up to £7,500 a year tax-free (£3,750 if you share the income with someone else). You cannot use the property allowance for the same room-letting income. Pick one for that income.

When to tell HMRC

GOV.UK's page on renting out a property says that if your income from property is between £1,000 and £2,500 you should contact HMRC, and that you must file a Self Assessment tax return if it is over £2,500 after expenses, or over £10,000 before expenses. If you do not normally file a return, you register by 5 October after the end of the tax year. Check the page for your own situation. Landlords with qualifying income over £50,000 now also have to follow Making Tax Digital.

Where to learn more

This guide is for information only and is not tax, benefits or financial advice. Rules and amounts can change, so check the official pages before you rely on them.