Property allowance or expenses: which should landlords use?

What the property allowance is

The property allowance is a tax-free allowance of £1,000 a year for individuals with income from land or property. You get one allowance as a person, however many properties you let, and it is separate from your £12,570 personal allowance.

It is measured against your gross property income, which is the rent you receive before taking off any costs. Using it is optional. You cannot deduct more than your income, so the allowance can never create a loss.

If your property income is £1,000 or less

When your gross property income for the tax year is £1,000 or less, the allowance covers all of it: you pay no tax on it and do not need to tell HMRC. HMRC calls this full relief.

The test uses income before expenses. If you receive £1,200 of rent and spend £400 on costs, your profit is £800 but your gross income is over the limit, so full relief does not apply. If your costs were higher than your rent, you can choose not to use full relief and report your income and expenses on a tax return instead.

Partial relief when your income is over £1,000

If your gross property income is more than £1,000, you can choose to deduct the allowance instead of your actual expenses. HMRC calls this partial relief. You then pay tax on your income minus £1,000, and you must tell HMRC about the income.

You make the choice for each tax year separately, so you can use the allowance in a year with low costs and claim expenses the next. The choice is made through your Self Assessment tax return, and you have until one year after the 31 January filing deadline for that tax year to make it.

What you give up by using the allowance

The allowance replaces every other deduction for that income, so check what you would lose before choosing it.

• All your actual expenses, including letting agent fees, repairs, insurance and the rest of the allowable expenses for landlords.
• The Section 24 tax reduction on mortgage interest and other finance costs for that tax year.
• Replacement of domestic items relief for furniture and appliances you replaced.

You also cannot choose the allowance at all if finance costs brought forward from earlier years would reduce your tax that year. How that credit is worked out is explained in the guide to Section 24 mortgage interest relief.

Who cannot use the property allowance

The allowance is for individuals, and even then it cannot be used against every kind of property income. You cannot use it against income from:

• a company that you, or someone connected to you, owns or controls
• a partnership where you, or someone connected to you, is a partner
• your employer, or the employer of your spouse or civil partner
• letting a furnished room in your own home under the Rent a Room Scheme, which has its own limit of £7,500

Joint owners

If you own a property jointly, each owner gets their own £1,000 allowance against their share of the gross rent. Each owner also makes their own choice between the allowance and expenses.

For example, if you and your spouse each receive half of £1,800 a year in rent, each share is £900. Provided neither of you has other property income, you both fall within full relief and neither of you needs to declare it.

Worked example: low running costs and no mortgage

A landlord in England earns £45,000 from their job in 2026/27. They receive £5,000 rent from a property they own outright and spend £200 on costs during the year.

Rent received

£5,000

Deduction claiming actual expenses

£200

Tax on the rent claiming expenses

£960

Deduction using the property allowance

£1,000

Tax on the rent using the property allowance

£800

Tax saved by using the allowance

£160

The allowance gives a bigger deduction than the landlord's real costs, and with no mortgage there is no tax credit to lose. The whole profit falls in the basic rate band, so every extra pound deducted saves 20%. After costs and tax the landlord keeps £4,000 using the allowance, compared with £3,840 claiming expenses.

Worked example: a property with a mortgage

The same landlord, still earning £45,000, instead receives £18,000 rent. They spend £3,200 on letting fees, repairs and insurance and pay £6,400 of mortgage interest.

Rent received

£18,000

Deduction claiming actual expenses

£3,200

Section 24 credit claiming expenses

£1,280

Tax on the rent claiming expenses

£3,586

Deduction using the property allowance

£1,000

Section 24 credit using the property allowance

£0

Tax on the rent using the property allowance

£5,746

Extra tax caused by using the allowance

£2,160

Here the allowance costs the landlord twice. It swaps £3,200 of expenses for a £1,000 deduction, and it removes a mortgage interest credit worth £1,280. Because the salary already uses most of the basic rate band, much of the extra profit is taxed at 40%. After costs and tax the landlord keeps £4,814 claiming expenses, but only £2,654 with the allowance.

How to decide

Use the allowance only when it gives you more relief than your expenses and the Section 24 credit together, which in practice means low running costs and little or no mortgage interest.

1. Add up your allowable expenses for the year, including any replaced furniture and appliances, but leaving out mortgage interest.
2. If your expenses are £1,000 or more, claim expenses. The allowance cannot give you a bigger deduction, and it would also cost you any mortgage interest credit.
3. If your expenses are lower, work out the tax the allowance saves on the difference between £1,000 and your expenses, at the rate your profit is taxed.
4. Compare that saving with the Section 24 credit you would lose, which is 20% of your finance costs, subject to its limits. Choose the allowance only if the saving is bigger.
5. Check that none of the exclusions above apply, and look again next year, because the choice is made one tax year at a time.

The rental income tax calculator runs this comparison for you. It works out your tax using expenses, the property allowance and, where it applies, Rent a Room relief, and shows which costs least.