Small Landlord Tax Reliefs Explained: Property Allowance & Rent-a-Room Scheme 2025/26

Why Small Landlord Reliefs Matter

Not every landlord runs a large rental portfolio. For those with smaller amounts of rental income — or individuals letting out a spare room — HMRC provides targeted tax reliefs to simplify reporting and reduce tax bills.

Two key schemes apply in 2025/26: the £1,000 property allowance and the Rent-a-Room scheme. Both allow landlords to earn income tax-free up to set limits, but they cannot always be combined with expense claims.

This guide explains how each relief works, when to use them, and the edge cases that trip landlords up.

The £1,000 Property Allowance

• Available to individuals with property income under £1,000 per year.

• If gross property income is below £1,000 → no need to register with HMRC or file Self Assessment.

• If gross property income exceeds £1,000 → you can:

  
  

  • Claim the allowance (deduct £1,000 instead of actual expenses), or

  • Deduct actual allowable expenses if higher.

Important: You cannot claim both the property allowance and expenses — it’s one or the other.

The Rent-a-Room Scheme

• Lets individuals earn up to £7,500 tax-free per year from renting out furnished accommodation in their main home.

• If income is shared (e.g., with a partner), the allowance is £3,750 each.

• Applies only to furnished accommodation in the landlord’s main residence (not buy-to-lets).

• Above the threshold:

  
  

  • Opt in and pay tax only on the excess over £7,500, or

  • Opt out and deduct actual allowable expenses instead.

Choosing Between Reliefs and Expenses

Property Allowance works best if:

• You have minimal expenses.

• You want simple reporting.

Rent-a-Room works best if:

• You’re letting a furnished room in your main home.

• Your income is within the £7,500 threshold.

Actual Expenses work best if:

• Your running costs exceed the available allowance.

• You want to maximise deductions against higher levels of income.

Edge Cases to Watch

• Property Allowance does not apply to income already covered by Rent-a-Room.

• Rent-a-Room cannot be used for unfurnished rooms or separate properties.

• Joint ownership rules can complicate which relief applies.

• You must actively elect to use Rent-a-Room if it reduces your tax compared to expenses.

How Wexley Helps Small Landlords

At Wexley & Associates, we guide landlords to:

• Decide whether to use the property allowance, Rent-a-Room, or actual expenses.

• Ensure reliefs are applied correctly in Self Assessment.

• Plan strategically if combining property with other income sources.

• Avoid pitfalls that lead to HMRC enquiries.

With our expertise, landlords can make the most of available reliefs without crossing compliance lines.

Maximise Reliefs, Minimise Tax

Small landlord reliefs are simple in theory but can become complex in practice — especially when deciding between allowances and expense claims. Professional advice ensures you don’t miss out on savings.

Contact Wexley & Associates today to make sure your rental reliefs are used correctly and efficiently.

References

• GOV.UK: Property allowance

• GOV.UK: Rent-a-Room scheme

• HMRC Helpsheet HS223: Rent-a-Room scheme

• Related Wex Insider article: Cash Basis for Landlords Explained: The 2025/26 Guide