The £1,000 Allowances
Since April 2017, HMRC has provided two separate £1,000 tax-free allowances for individuals with small amounts of property or trading income:
| Allowance | Amount | Covers |
|---|---|---|
| Property income allowance | £1,000 | Income from land and property |
| Trading income allowance | £1,000 | Income from self-employment, casual work, or side activities |
These allowances operate independently. A person who receives both property income and trading income can claim both allowances, benefiting from up to £2,000 of tax-free income in total.
Property Income Allowance
The property income allowance provides a £1,000 tax-free threshold for income from land and property. This covers:
- Rental income from letting a room or property
- Income from renting a driveway or parking space
- Fees from allowing use of land (e.g., for events, storage)
- Income from furnished holiday lets (where applicable)
How it Works
If your total gross property income is £1,000 or less in the tax year, you do not need to declare it to HMRC or pay any income tax on it. You also do not need to register for self-assessment.
If your gross property income exceeds £1,000, you have two choices:
| Option | How it works |
|---|---|
| Use the property allowance | Deduct £1,000 from gross income and pay tax on the remainder |
| Claim actual expenses | Deduct actual allowable expenses from gross income and pay tax on the profit |
Example
A homeowner renting out their driveway earns £1,800 per year. Their actual expenses (advertising, minor maintenance) total £300.
| Method | Taxable income |
|---|---|
| Property allowance | £1,800 - £1,000 = £800 |
| Actual expenses | £1,800 - £300 = £1,500 |
In this case, using the property allowance produces a lower taxable amount. However, if expenses were £1,200, claiming actual expenses would be more beneficial (£600 taxable vs £800).
Interaction with Rent-a-Room Relief
The property income allowance is separate from the Rent-a-Room scheme, which provides up to £7,500 of tax-free income for letting a furnished room in your own home.
You cannot claim both the property income allowance and Rent-a-Room relief on the same income. If you let a room in your home, the Rent-a-Room scheme is usually more generous. The property income allowance is better suited to other types of property income, such as driveway rental or land use fees.
Trading Income Allowance
The trading income allowance provides a £1,000 tax-free threshold for miscellaneous self-employment and casual income. This covers:
- Freelance or casual work (e.g., tutoring, gardening, odd jobs)
- Selling goods online or at markets on a small scale
- Providing services through platforms like TaskRabbit or Fiverr
- Income from the sharing economy (e.g., renting out equipment)
How it Works
If your total gross trading income is £1,000 or less in the tax year, you do not need to declare it, register for self-assessment, or pay tax on it.
If your gross trading income exceeds £1,000, you have two choices:
| Option | How it works |
|---|---|
| Use the trading allowance | Deduct £1,000 from gross income and pay tax on the remainder |
| Claim actual expenses | Deduct actual allowable business expenses from gross income and pay tax on the profit |
When to Use Actual Expenses
The trading allowance is most beneficial when your expenses are low relative to your income. If you have significant deductible costs — stock, equipment, travel, materials — claiming actual expenses will usually produce a lower tax bill.
| Scenario | Gross income | Expenses | Allowance method taxable | Expenses method taxable | Better option |
|---|---|---|---|---|---|
| Low-cost service work | £3,000 | £400 | £2,000 | £2,600 | Allowance |
| Product sales | £3,000 | £2,200 | £2,000 | £800 | Expenses |
Who Cannot Use These Allowances?
The property income allowance and trading income allowance are not available in certain situations:
- Income from a company you control or are connected with
- Income from an employer or former employer
- Income from a partnership involving a connected person
- Where the income relates to a business that was previously carried on and full deductions were claimed
These restrictions prevent individuals from reclassifying employment or connected-party income to benefit from the allowances.
Using the Allowances on a Tax Return
If you file a self-assessment return, you report the allowance on the relevant supplementary pages:
- Property allowance — declared on the UK property pages (SA105), choosing the flat-rate deduction instead of listing actual expenses
- Trading allowance — declared on the self-employment pages (SA103S), using the allowance instead of recording expenses
You make the choice each tax year. You can use the allowance one year and switch to actual expenses the next.
Multiple Sources of the Same Income Type
The £1,000 property allowance applies to your total property income across all sources, not per property. Similarly, the trading allowance applies to your total trading income.
| Scenario | Total income | Allowance available |
|---|---|---|
| Two rental properties earning £600 each | £1,200 | One £1,000 allowance against the total |
| Three casual trading activities earning £400 each | £1,200 | One £1,000 allowance against the total |
Impact on Losses
If you use the property or trading allowance, you cannot create a tax loss. The allowance is limited to the amount of income — it cannot exceed it. If your income is £500 and you use the £1,000 allowance, the deduction is capped at £500, resulting in nil taxable income rather than a £500 loss.
This means the allowances are unsuitable for anyone who would benefit from establishing a trading or property loss to carry forward or set against other income.
Practical Considerations
- Record-keeping — Even if your income falls below £1,000, keeping basic records of amounts received is good practice in case HMRC queries your position
- Growth trajectory — If your side activity is growing and expenses are increasing, switching from the allowance to actual expenses early ensures you establish proper bookkeeping from the start
- National Insurance — If your trading income exceeds £1,000 (after the allowance), you may need to pay Class 4 National Insurance through self-assessment, in addition to income tax, and you can choose to pay voluntary Class 2 if your profits are below the Small Profits Threshold
- VAT — These allowances relate only to income tax and do not affect VAT registration thresholds; if your taxable turnover exceeds £90,000, VAT registration is required regardless