TaxYearSheetsThe rules in short
- £1,000 or less gross property income: tax-free, and you don't need to tell HMRC unless you can't use the allowance (GOV.UK).
- More than £1,000: deduct either the £1,000 allowance or your actual allowable expenses – not both. The allowance can't create a loss.
- Finance costs (e.g. residential mortgage interest) give a tax reduction at 20% – 22% from 2027/28 – and you can't have it if you use the allowance (GOV.UK, 2027 changes).
- Telling HMRC: over £1,000 and up to £2,500, contact HMRC; over £2,500 after expenses or over £10,000 before expenses, send a Self Assessment return. If you're new to Self Assessment, register by 5 October after the tax year ends (GOV.UK).
- Can't use it on Rent a Room income, or on income from a company or partnership you or someone connected to you controls, or from your (or your spouse's) employer.
| Tax year | Basic | Higher | Additional | Finance cost reduction |
|---|---|---|---|---|
| 2025/26 and 2026/27 | 20% | 40% | 45% | 20% |
| 2027/28 (property income) | 22% | 42% | 47% | 22% |
Sources: GOV.UK – Income Tax rates (England and Northern Ireland), GOV.UK – changes to tax rates for property income and Finance Act 2026 section 7.
Landlord in England? Check your Renters' Rights Act dates. Gross income over £20,000? See whether Making Tax Digital applies.
Questions
What is the £1,000 property allowance?
A tax-free allowance of up to £1,000 a year on property income. If your gross property income is £1,000 or less, you don't need to tell HMRC (unless you can't use the allowance). If it's more, you can deduct £1,000 instead of your actual expenses – not both.
Can I claim mortgage interest and the property allowance?
No. GOV.UK says you can't use the property allowance if you claim the tax reduction for finance costs such as residential mortgage interest. That tax reduction is worth 20% of the finance costs (22% from 2027/28).
Do joint owners each get £1,000?
Yes. If you own a property jointly, you can each use the £1,000 allowance against your own share of the gross rent.
When do I need to tell HMRC about rental income?
GOV.UK: contact HMRC if your property income is more than £1,000 and up to £2,500. You must report it on a Self Assessment return if it's more than £2,500 after allowable expenses or more than £10,000 before expenses. If you're new to Self Assessment, register by 5 October after the end of the tax year.
Can I use the property allowance with Rent a Room?
No. You can't use the property allowance on income from letting a room in your own home under the Rent a Room Scheme.