If you receive property income, whether that be from renting out your first ever home or being the host with the most letting out lavish apartments on AirBnB, it’s likely you have some tax to pay.

We’ll explore the different types of property income in this blog, as well as the taxes you need to pay, and the tax relief you can claim.

What is property income?

Property income is essentially any income you make from land or buildings. For example, receiving income from a flat you’ve let out. This is probably an obvious one, but there’s other types of property income you may not have thought about, like renting out a parking space.

There are lots of grey areas, which can be confusing, but it’s important to determine whether your earnings are from property income when it comes to filing your Self Assessment.

How do I know if my income falls under property income?

Basically, any income you receive from land or buildings that isn’t a trade is classed as property income. For example, a farmer converts a barn and uses it to host arts and crafts sessions – this is trade income, not property income, because they’re using the space to make money from trading. If they simply rent out the empty space to someone else, it would be property income.

Another big example would be if you run a hotel. The trade is hospitality, which means the income you receive is not property income.

The types of property income:

• Rental income – this is probably the most common one, it’s the income you receive from renting out a property to tenants
• Furnished Holiday Lets – this is where you rent out your property short-term, such as to holiday makers or people away on business. It’s important to note special tax rules for FHLs will be abolished from 6th April 2025.
• Other property income – this is a bit broader but examples could include letting out land, renting out a parking space or leasing mineral rights

You can receive property income without even realising it. For example, if you’ve inherited a home and decide to sell, you might have to pay Capital Gains Tax.

What tax will I pay on my property income?

Like most forms of income, property income is taxable unless it falls within reliefs or allowances, like the property allowance.

This is like the trading allowance, where you can earn up to £1,000 of income, from property or land, tax free without needing to declare it to HMRC. If one or more of you own a property together, you are all entitled to this allowance.

If your income is over the property allowance, you need to let HMRC know – but that doesn’t necessarily mean you’ll pay tax. It all depends on how much you earn.

 
To get more of an idea of how much tax you’ll pay, check out our UK Tax Rates, Thresholds and Allowances for the Self-Employed. And always remember to keep accurate bookkeeping records regardless of whether you need to submit a Self Assessment or not.

How do I claim property allowance?

You can decide how you want to use your property allowance. There’s two ways you can go about it. Claiming the property allowance ‘full relief’ or ‘partial relief.’

Property allowance full relief

This is where your rental income before expenses is at or below the property allowance. In this instance, you don’t need to do anything. Your earnings are completely tax-free and HMRC don’t need to know about it either.

Property allowance partial relief

This is where you’ve exceeded the property allowance, but instead of deducting expenses on your Self Assessment, you claim the tax-free property allowance against your income instead.

Whether this is tax-efficient or not, really depends on how much your expenses are. If they’re £300 for example, this is less than the value of claiming the property allowance so the allowance is a better option, but if they’re £2,000, you’d be missing out if you don’t claim them. It’s important to note you cannot claim both, so choose the one which gives you the biggest reduction on your tax bill!

Are there any other tax allowances for property income I receive?

Yes – and it’s important to ensure you claim everything available to you! For instance, if you rent out a room, you could be entitled to ‘rent-a-room’ relief.

There are also allowances and relief non-specific to property that you could be claiming. For example, you might be able to claim capital allowances on fixtures within your rental property.

To ensure you’re staying tax-efficient, it’s important you choose the right legal business structure, and the best way to own the property too. And of course, if you’re ever in doubt, chat to an accountant.

 
Need help with your property income? Talk to the team on 020 3355 4047, or get an instant quote today.