A landlord with one garage or room let: the £1,000 property allowance or expenses, worked at four rent levels

A landlord client lets a garage, a driveway or a spare room and takes £1,400 a year in rent. The agent's job is collecting it and passing it on. The question that comes next is tax, and the answer depends on which of two rules the landlord uses.

The rule on GOV.UK

The property allowance is a tax exemption of up to £1,000 a year for individuals with income from land or property. GOV.UK sets it out in two cases.

• Income of £1,000 or less: full relief. You must keep records, but you generally do not need to tell HMRC.
• Income above £1,000: you can deduct up to £1,000, "but not more than the amount of your income", instead of deducting any expenses. You cannot create a loss with it.

For joint owners, the page says each is eligible for the £1,000 allowance against their share of the gross rent.

Four rent levels worked

The landlord picks the better of two sums: rent minus actual expenses, or rent minus £1,000.

The pattern is simple. The allowance is a flat £1,000 of "expenses", so it wins when the landlord's real costs are below £1,000 and loses when they are above. At exactly £1,000 of costs there is no difference. A landlord with a mortgage and an agent's fee on a flat will almost always be above £1,000 and claim expenses; one letting a space they own outright will usually be below it.

Who cannot use it

The page says you cannot use the allowances in a tax year if you have 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 your spouse's or civil partner's employer. The page does not define "connected to you", so a landlord letting a garage to their own limited company should be told to check HMRC's guidance rather than assume.

If a landlord uses the property allowance for one property business, the page adds that they may not claim actual expenses for the other.

What an agent can usefully ask

• How much rent is actually coming in in the tax year? Gross rent, before any agent's fee.
• Are there other lets? The allowance is one £1,000 per person, not per property. A landlord with a garage and a flat has one allowance.
• Is the let to a business the landlord is connected to? That ends the allowance.
• Does the landlord need to tell HMRC? At £1,000 or less, generally not. Above it, they declare the income, and for larger lets the rules in our guide to Making Tax Digital for landlords may apply.

An agent is not a tax adviser and should say so. What the agent can do is put the choice in front of the landlord in a form their accountant can check, and remind them to keep the rent records even when no tax is due.

For a landlord who is thinking of selling, the separate sum in our capital gains tax guide matters more than any allowance. The yearly paperwork an agent already prepares is set out in the lettings compliance checklist. For a landlord who lets a room to a lodger, the allowance is also worth comparing with Rent a Room relief, which I did not read for this guide.

Overlyft builds AI staff who join your lettings team, total each landlord's rent for the tax year from the ledger, set it against their logged costs and prepare a one-page summary showing which of the two methods looks better, for you to check before it is sent.

This is general information, not tax advice. Landlords should check GOV.UK and their own figures, or ask their accountant.