How the property allowance works
The property allowance operates in three tiers depending on gross income:
- Full exemption (gross income up to £1,000): If total gross property income is £1,000 or less, it is fully exempt from Income Tax
- Full allowance election (gross income over £1,000): The landlord can elect to deduct the £1,000 allowance instead of actual expenses. Taxable profit = gross income minus £1,000
- No election: Where actual allowable expenses exceed £1,000, the landlord claims actual expenses in the normal way
When the property allowance is not worthwhile
For most landlords with a buy-to-let mortgage, actual expenses will far exceed £1,000:
- Section 24 mortgage interest credit cannot be combined with the property allowance election
- Agent fees of 10% on £12,000 annual rent already exceed the £1,000 allowance
- Best use case: landlords with very small property income such as parking spaces, storage units, or long-void properties
Joint ownership and the allowance
- Each joint owner receives their own £1,000 property allowance against their share of the income
- Married couples default to a 50/50 split — a Form 17 declaration is required to split income in proportion to beneficial ownership
- The allowance cannot create a loss — it can only reduce rental profit to nil