The £1,000 Trading and Property Allowances Explained: Side-Income HMRC Doesn't Need to Hear About

What the allowances are

Side income has a tax-free floor. You can get up to £1,000 each tax year in tax-free allowances for property or trading income from 6 April 2017 (gov.uk).

The two allowances stack. If you have both types of income, you'll get a £1,000 allowance for each (gov.uk).

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The trading allowance

The trading allowance is a tax exemption of up to £1,000 a year for individuals with trading income from self-employment, or casual services — for example, babysitting or gardening (gov.uk).

One structural exclusion: this allowance does not apply to trading income from a partnership (gov.uk).

The property allowance

The property allowance is a tax exemption of up to £1,000 a year for individuals with income from land or property (gov.uk).

It is per person, not per 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 (gov.uk).

It has its own boundary with the other room-letting relief: you cannot use this allowance on income from letting a room in your own home under the Rent a Room Scheme (gov.uk).

Full relief and partial relief

Below the threshold, the paperwork disappears. If your annual gross property income is £1,000 or less, from one or more property businesses, you will not have to tell HMRC or declare this income on a tax return (gov.uk).

Above it, the allowance becomes a choice. If your annual gross trading or property income is more than £1,000, you can use the tax-free allowances instead of deducting any expenses or other allowances (gov.uk). If you use the allowances you can deduct up to £1,000, but not more than the amount of your income (gov.uk).

The choice matters when costs are high. If your expenses are more than your income, it may be beneficial to claim expenses instead of the allowances (gov.uk).

Note the word gross throughout: gross income means the total amount you would put on your tax return before any allowances or expenses are taken off (gov.uk).

When you must still tell HMRC

For trading income, the ladder runs: you must tell HMRC if you have gross trading income over £1,000 — register for Self Assessment; other gross income over £1,000 up to £2,500 — contact HMRC; other income over £2,500 — register for Self Assessment (gov.uk).

For property income: gross property income over £1,000 up to £2,500 — contact HMRC; property income over £2,500 — register for Self Assessment (gov.uk).

When you cannot use the allowances at all

The allowances are for genuinely independent side income. You cannot use the allowances in a tax year if you have any trade or property income from: a company you or someone connected to you owns or controls; a partnership where you or someone connected to you are partners; or your employer or the employer of your spouse or civil partner (gov.uk).

The property allowance has two further blocks: you cannot use it if you claim the tax reducer for finance costs, such as mortgage interest for a residential property, or if you deduct expenses from income from letting a room in your own home instead of using the Rent a Room Scheme (gov.uk).

A note on scope

This page covers the published HMRC rules: the £1,000 trading and property allowances (gov.uk), the one-of-each stacking (gov.uk), the full-relief declaration exemption (gov.uk), the partial-relief expenses-or-allowance choice (gov.uk), the HMRC notification ladders (gov.uk), and the connected-party exclusions (gov.uk).

UK Calculator provides information and tools, not regulated financial advice or tax advice. Whether the allowance or actual expenses gives the better result depends on the numbers of the specific trade or letting — an accountant or tax adviser is the right person to assess an individual case.

Frequently asked questions

How much side income is tax-free?

You can get up to £1,000 each tax year in tax-free allowances for property or trading income (gov.uk).

Can I use both allowances in the same year?

Yes — if you have both types of income, you'll get a £1,000 allowance for each (gov.uk).

Do I need to tell HMRC about income under £1,000?

If your annual gross property income is £1,000 or less, from one or more property businesses, you will not have to tell HMRC or declare this income on a tax return (gov.uk).

Can I claim the allowance and my expenses?

No — if your annual gross trading or property income is more than £1,000, you can use the tax-free allowances instead of deducting any expenses or other allowances (gov.uk).

Does the trading allowance cover partnership income?

No. This allowance does not apply to trading income from a partnership (gov.uk).

Can landlords using the Rent a Room Scheme use the property allowance?

No — you cannot use this allowance on income from letting a room in your own home under the Rent a Room Scheme (gov.uk).