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The HMRC property income allowance is a flat £1,000 tax-free allowance that you can use against your rental income. You can’t claim it in conjunction with any other rental income allowances (e.g. the Rent-a-Room scheme) so you should consider whether it’s the most tax-efficient relief you can claim.
You can claim the property income allowance if:
Be aware that if your annual rental income is less than £1,000, you don’t have to declare this to HMRC, nor do a tax return.
The allowance was introduced in 2017, along with the Trading Allowance. Since then, the benefits to being a buy-to-let landlord are seen by many as dwindling. Here’s why:
It’s probably more useful to look at the financial impact. The below table shows the comparison between your taxable income back in 2016 vs. today.
2016 | Today | |
Annual rental income | £12,000 | £12,000 |
Annual mortgage interest | £3,600 | £3,600 |
Claimable mortgage interest | £3,600 | £0 (but instead you get a 20% tax credit worth £720) |
Taxable annual income | £8,400 | £12,000 |
Basic rate tax bill | £1,680 | £1,680 |
Higher rate tax bill | £3,360 | £4,080 |
We’ve written a more in-depth guide to help you decide. Take a look here to work out whether or not the property income allowance is for you.
Or see our Guides, Calculators or Taxopedia