HMRC £1,000 Annual Tax Allowance for Property Income

From 6 April 2017 HMRC have launched a new allowance to help make the tax system easier –  a £1,000 annual tax allowance for property. But as with most tax rules, its important to understand how they work and what makes you eligible to claim for them.

What is the £1,000 Property Allowance

The HMRC Annual Trading Allowance is available to everyone who earns rental income of £1,000 or less during a tax year. Those that fall into this category can choose to not tell HMRC about this income or even register as a landlord, avoiding the need to submit a Self Assessment Tax Return (depending on their status).

Definitions:

  • Rental Income means the amount you receive before deducting costs and expenses
  • Annual means tax year, which runs 6 April to 5 April

How to Claim the HMRC £1,000 Property Income Allowance

If you do not currently submit a tax return then you don’t need to do anything to claim for the property income allowance but you must keep records of your income and expenses to evidence that you are entitled, should HMRC ever ask. Consider setting up a spreadsheet and make sure you file all your business receipts. You should also keep an eye on your income because once it goes above the trading allowance you will need to register for Self Assessment by 5 October.

If you are already registered for self assessment for another reason for example you are self employed, then you must still continue to submit your tax return as well as including your rental income within the property section of your tax return.   To claim the allowance simply show you rental income within the total rents section and then your claim for the property income allowance below it.

What to Remember about the £1,000 Property Allowance

As with most tax allowances you should make sure that claiming them is right for you and your situation both now and in the future.  Here are some considerations you must take into account before deciding to use the Property Income Allowance:

  • If you own a property jointly with others, you’re each eligible for the £1,000 allowance against your share of the gross rental income;
  • You are entitled to claim for both the Annual Trading Allowance of £1,000 AND Annual Property Income Allowance of £1,000;
  • The allowance can be used towards foreign property rental income;
  • You cannot use the £1,000 Property Allowance to generate a tax repayment;
  • If you are a new landlord who will have ongoing rental income, you may want to choose to claim your actual expenses to generate a tax loss which you can set off against your future business rental profits;
  • You cannot claim the annual property income allowance on income from letting your own home if you are claiming allowances under the Rent a Room Scheme.

As always, seek professional advice if you are unsure of how the HMRC Property Income Allowance works and whether it is right for you.

Anita is a Chartered Accountant, turned blogger and creator of the ever popular free Go Self Employed Email Mini Course, which has been completed by hundreds of attendees all over the UK. Using her 10 years experience in accounting, tax and operations for Small Businesses, Anita is on a mission to make finance simple for the self employed, so they can stop stressing about tax & finances and focus on building profitable businesses which will give them the lifestyle they dream of.