Two separate tax-free reliefs exist for small amounts of UK property income, and they are often confused. The property allowance is £1,000 a year against most rental income. Rent a Room is up to £7,500 a year for letting furnished space in your own home. They have different rules and you cannot stack both on the same income.
The property allowance
gov.uk's guidance on tax-free allowances on property and trading income describes a property allowance of up to £1,000 each tax year for income from land or property, available since 6 April 2017. It works like the trading allowance, and is measured on gross income, meaning rent received before any expenses.
- Full relief. If gross property income is £1,000 or less you generally do not need to tell HMRC or declare it. Keep records.
- Partial relief. If gross property income is over £1,000 you can deduct the allowance instead of actual expenses. The deduction is capped at your income, so it cannot create a loss.
- Joint owners. Each owner gets their own £1,000 against their share of the income.
If you use the allowance, you cannot also deduct expenses from that income. The legislation (ITTOIA 2005, ss783BC and 783BD) applies one £1,000 allowance to your property income as a whole, not one per property.
When you cannot use it
You cannot use the property allowance in a year where the income comes from a company you or a connected person own or control, a partnership in which you or a connected person is a partner, or your employer or your spouse's or civil partner's employer. It is also unavailable if you claim finance cost relief on a residential property. Landlords with mortgages will usually be better off with actual expenses anyway; see our UK property income guide for how the interest restriction works.
Rent a Room
gov.uk's Rent a Room Scheme page sets the limit at £7,500 a year from furnished accommodation in your home, or £3,750 if you share the income with someone else. You can let as much of your home as you like. You can opt in if you are a resident landlord, whether or not you own your home, or run a bed and breakfast or guest house. The scheme cannot be used for a home converted into separate flats.
- Below the limit the exemption applies automatically and you do not need to do anything.
- Above the limit you must complete a tax return. You can opt into the scheme on that return and be taxed only on the excess, or opt out and record your actual income and expenses on the property pages. HMRC's helpsheet HS223 explains when opting out is better.
Which one applies?
| Situation | Relief that fits |
|---|---|
| You let a furnished room in the home you live in | Rent a Room (up to £7,500, or £3,750 if shared) |
| You let a separate buy-to-let, garage or parking space | Property allowance (£1,000), or actual expenses |
| You let a room in your home and also have a second property | Rent a Room on the room; property allowance or expenses on the other income |
| Your rent from a property is small but the property has a mortgage | Usually actual expenses plus finance cost relief, not the allowance |
Two things follow. First, Rent a Room is far bigger, so if you take lodgers it is usually the right tool. Second, choosing a relief is a per-source decision. The property allowance and Rent a Room cannot be applied to the same income.
When to tell HMRC
For property income gov.uk says the thresholds work like this:
- £1,000 or less gross: generally nothing to declare, keep records.
- Over £1,000 up to £2,500 gross: contact HMRC.
- Over £2,500 gross: register for Self Assessment.
Our registration guide explains the 5 October deadline. If you are already registered, include the property income on your return and tick the relief that suits you.
Records and common mistakes
- Count gross receipts, not profit, when testing the £1,000 line.
- Do not claim expenses and the allowance on the same income.
- Remember the Rent a Room limit is halved to £3,750 if you share the income with someone else, for example a co-owner.
- Keep tenancy dates and rent statements even when the income is fully relieved. HMRC can penalise records that are inaccurate, incomplete or unreadable.
How ac-co helps
ac-co drafts your SA105 from the rent in your bank feed, then calculates whether Rent a Room or full property income gives the lower tax so you can review the choice before the return is filed.