Property and Trading Allowances Explained

If you earn small amounts from renting out property or doing self-employed work, you may be able to use tax-free allowances that simplify your tax affairs. From 6 April 2017, HMRC has provided £1,000 allowances for both property and trading income, which can reduce or eliminate the tax you owe and potentially remove the need to complete a Self Assessment tax return.

What are the £1,000 allowances?

There are two separate £1,000 allowances available:

Trading allowance – covers income from self-employment, casual services (such as babysitting or gardening), or hiring out personal equipment like power tools.

Property allowance – covers income from land or property.

If you have both types of income, you get a £1,000 allowance for each, giving you up to £2,000 in total tax-free income across both categories.

These allowances have been available since 6 April 2017 and continue to apply in the 2025/26 tax year.

How the allowances work

The allowances work in two ways, depending on how much income you earn:

Full relief (income of £1,000 or less)

If your annual gross income (the total before any deductions) from property or trading is £1,000 or less, you don't need to tell HMRC or declare this income on a tax return in most cases. You still must keep records of this income.

Partial relief (income over £1,000)

If your gross income is more than £1,000, you can choose to use the allowance instead of claiming your actual expenses. You can deduct up to £1,000 from your income, but not more than the amount of income you've earned. This means you cannot create a loss using these allowances.

Choosing between the allowance and expenses

When your income exceeds £1,000, you need to decide whether to use the allowance or claim your actual expenses. You cannot do both.

If your expenses are more than £1,000, you'll be better off claiming your actual expenses instead of using the allowance. However, if your expenses are less than £1,000, using the allowance is simpler as you don't need to track and prove all your costs.

If you claim expenses instead of using the allowances, you can use other reliefs such as capital allowances for equipment.

When you must tell HMRC

Even with these allowances, there are thresholds that trigger reporting requirements:

For trading income:

• Over £1,000 – register for Self Assessment
• Other gross income between £1,000 and £2,500 – contact HMRC
• Other income over £2,500 – register for Self Assessment

For property income:

• Between £1,000 and £2,500 – contact HMRC
• Over £2,500 – register for Self Assessment

If your gross income exceeds £1,000, you must register for Self Assessment by 5 October following the end of the tax year.

Joint property ownership

If you own a property jointly with others, you're each eligible for the £1,000 property allowance against your share of the gross rental income. This means each joint owner can benefit from the allowance separately.

When you cannot use the allowances

You cannot use either allowance if your trading or property income comes from:

• A company you or someone connected to you owns or controls
• A partnership where you or someone connected to you are partners
• Your employer or the employer of your spouse or civil partner

The property allowance specifically cannot be used if you:

• Claim the tax reducer for finance costs such as mortgage interest on a residential property
• Deduct expenses from letting a room in your own home instead of using the Rent a Room Scheme (which has its own separate £7,500 allowance)

Note that the trading allowance does not apply to income from a partnership.

When you might still need Self Assessment

Even if your income is £1,000 or less, you must register for Self Assessment if you:

• Have made a loss and want to claim relief
• Want to pay voluntary Class 2 National Insurance contributions to qualify for certain benefits
• Want to claim Tax-Free Childcare based on your self-employment income
• Want to claim Maternity Allowance based on your self-employment

If you're already registered for Self Assessment, you can still use these allowances by deducting them from your gross income on your tax return.

Records you must keep

Even when using these allowances, you must keep records of your income. HMRC can charge you a penalty if your records are not accurate, complete and readable, or if you don't retain them for the required period.

Examples of acceptable records include:

• Copies of invoices (paper or electronic)
• Spreadsheets of income receipts
• Emails confirming income received
• Payment statements showing amounts received
• Bank statements and deposit records
• Diaries or appointment books showing income from each customer

Sources

• Tax-free allowances on property and trading income

This article provides general guidance based on current HMRC rules. For advice specific to your situation, speak to your accountant.