The property allowance is essentially an additional personal allowance for property income. It allows individuals to enjoy property income of up to £1,000 each tax year, free of tax and without needing to report it to HMRC. Where income from property exceeds £1,000, the allowance can be deducted instead of actual expenses. However, there are some exclusions.
Property income of less than £1,000
Where income from property is less than £1,000, it falls wholly within the allowance and as such does not need to be reported to HMRC. This is handy when a small amount of rental income is received in the tax year, for example, from letting out a driveway for parking during Wimbledon, as it removes the administrative burden of reporting the income to HMRC.
However, if income is less than £1,000 and expenses exceed income, it can be useful to report the loss so it can be set against future rental profits.
Property income of more than £1,000
Where property income exceeds £1,000, the landlord has the option to deduct actual expenses when calculating the rental profit or to deduct the £1,000 property allowance. Where actual expenses are less than £1,000, deducting the property allowance will provide a more favourable result.
Exclusions
Where a personal or family business is run from home, it is common for the company to pay rent for the use of the home office. However, the property allowance is not available where an individual receives rent paid by or on behalf of a close company at a time when the individual is a participator in the close company or an associate of a participator. This means that where a person has a personal company, the property allowance is not available if rent is paid by the company to that person or to their spouse or civil partner.
Where a person or a person connected to them is a partner in a partnership, the allowance cannot be used against rent paid by, or on behalf of, the partnership.
The allowance is similarly not available if an employer pays rent to an employee or their spouse or civil partner.
Further, the allowance cannot be used in addition to rent-a-room relief.
Looking ahead
Last year, the government stated that they planned to increase the property allowance to £3,000 before the end of the current Parliament. This has yet to be introduced, and no date has been set.
