The property income allowance is a £1,000 annual allowance for rental income. It is simple in concept but the decision about whether to use it — and understanding when it is beneficial — requires a little care. This guide explains what the allowance is, when it applies, and how to decide whether you should use it instead of deducting your actual expenses.
The property income allowance was introduced in April 2017. It provides an automatic £1,000 exemption on income from property.
The key figure is gross income — what you receive before deducting any costs.
If your rental income from all properties added together is £1,000 or less, you owe no income tax on it and are not required to report it through Self Assessment. This is particularly useful for landlords who receive small amounts of rental income — a parking space, a room let for a short period, or a nominal sum. You also do not need to keep detailed expense records in this situation. You may still need to file a Self Assessment return for other reasons, but not because of the rental income.
If your rental income exceeds £1,000, you can either deduct your actual allowable expenses in the usual way, or deduct the £1,000 allowance instead. You cannot do both in the same tax year. This election is made on your tax return or MTD Final Declaration.
The choice is purely mathematical. The allowance is only beneficial if your actual expenses are less than £1,000. If they exceed £1,000, always use actual expenses.
Example 1 — allowance is better: Rental income £4,500, actual expenses £600. Using actual expenses: taxable profit £3,900. Using the allowance: taxable profit £3,500. The allowance saves £400 of taxable profit (£80 at the basic rate).
Example 2 — actual expenses are better: Rental income £4,500, actual expenses £2,200. Using actual expenses: taxable profit £2,300. Using the allowance: taxable profit £3,500. Always use actual expenses when they exceed £1,000.
You cannot use the property income allowance if the rental income comes from your employer or a connected person of your employer. You also cannot use it alongside rent-a-room relief — rent-a-room is a separate scheme for renting a furnished room in your own home with a higher threshold of £7,500 per year. If your rental income is from a room in your own home, rent-a-room relief is likely more beneficial. If it is from a separate property, rent-a-room relief does not apply.
If your rental income is £1,000 or less, you are well below the MTD thresholds (£50,000 from April 2026, £30,000 from April 2027) and have no MTD obligation. If your income is above the MTD threshold, you must still use MTD even if you choose to use the allowance. At the Final Declaration stage, your MTD software will have a field where you indicate that you are using the property income allowance rather than itemising expenses. Enter the full gross income and make the election in the software — do not manually deduct the £1,000 from your income before entering it. You still need to keep digital records of your gross income; you simply do not need to itemise expenses if you are using the allowance.
The property income allowance applies per individual. If you jointly own a rental property with another person, each of you has a separate £1,000 allowance against your own share of the income. For example, if you and your spouse own a property equally generating £1,600 of rent, each of you has £800 — both within the £1,000 exemption, so neither owes tax. This can be a useful factor when considering how to hold property for small rental incomes. See our MTD FAQs or visit the SimplifyMTD homepage.