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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.
|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.
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