If you have income from land and property, you may be able to take advantage of the property allowance which can be used in various ways.

The first way in which it can be used is as a tax exemption. If your income from property is less than £1,000, the property allowance allows you to receive that income free from tax. Where the income is covered by the allowance, you do not need to tell HMRC about it.

However, claiming the allowance may not be of benefit to you if your property income is less than £1,000, but your expenses are more than £1,000, meaning that you make a loss.

If you claim the exemption this will mean that the loss is lost. To preserve the loss, you must provide HMRC of details of your income and expenses on your tax return.

This loss can only be set against future profits from the same property income business.

The second way the property allowance can benefit you is if your income from property is more than £1,000, but your expenses are less than £1,000. Where this is the case, you will not benefit from the exemption, but you can instead deduct the property allowance of £1,000 to arrive at your taxable profit and this will give a favourable result.

For example: Wendy has an income of £3,000 from letting a flat. Her associated expenses are £600. Under the normal rules, her taxable profit is £2,400.

However, she can claim the property allowance and deduct £1,000 rather than her actual expenses of £600. This reduces her taxable profit to £2,000.

And finally, where a property is jointly owned, each owner can benefit from the property allowance for their share of the income. Where this is less than £1,000, the income is exempt and does not need to be reported to HMRC; where this is more than £1,000, the allowance can be deducted instead of actual expenses where this is beneficial.

We appreciate this is a lot of information to take in, especially when you consider your individual circumstances, so if you want to chat through any of this and get our expert advice please do not hesitate to get in touch on 01472 287387.