The property allowance is a tax exemption of up to £1,000 a year for individuals with income from land or property.
If you own a property jointly with others, you’re each eligible for the £1,000 allowance against your share of the gross rental income.
It was introduced in Finance Act (No2) 2017.
I have seen may tax payers use it incorrectly on their returns, putting in the allowance and claiming expenses, which is incorrect.
The property allowance applies to
- UK and Overseas property businesses
- Commercial and Residential Lettings
There are exclusions
- Rent a Room – PIM4424
- Individuals claim the Base Rate Finance Cost Allowance – PIM4460
- Partnership Property – PIM4454
If your property income from UK and Overseas properties is less than £1,000 you will get full relief and don’t need to file a self assessment return.
If your income is over a £1,000 from UK and Overseas Property then you can choose whether its worthwhile, for example if your expenses exceed £1,000 you would not want to use the allowance as you can claim the actual expenses, there are some examples in PIM4482.
The Property Allowance can not create a property loss to carry forward.
If your property income exceeds £1,000 and you elect to use the Property Allowance, that would be ‘Partial Relief’.
You can choose to either deduct the £1,000 or the actual costs (this is bit I have seen incorrectly noted on tax returns, basically landlords have tried to claim both, which is not allowed)
You can decide on a year by year basis which is better – £1,000 or the actual costs.
Elections must be made by the 31st January following the tax year.
Here is an example from PIM4483
Stephanie computes partial relief as follows:
Step 1 – Calculate Total Receipts of the relevant property business:
The total receipts of the relevant property business is £1,200.
Step 2 – Subtract the Deductible Amount from Receipts:
The £1,000 allowance is subtracted from the total receipts for her property business. This leaves £200 (£1,200 – £1,000) of taxable profits for Stephanie’s property business.
The legal fees of £150 are not brought into account because you cannot claim both the property allowance and expenses.
There is further guidance at PIM4400