Property income: rental profits, the property allowance and rent-a-room
Property questions are really income-CLASSIFICATION questions. Rental profit is NON-SAVINGS income: it aggregates with salary and every other non-savings source, fills the same bands in the same order, and gets none of the savings furniture — no personal savings allowance, no starting rate. Classify it as savings income or give it its own rate schedule and you have reproduced the two standard wrong answers. Two reliefs sit on top, each with a trap. The £1,000 property allowance is an either/or: gross property income up to that amount is simply exempt, and above it the allowance can be deducted INSTEAD of actual expenses — never on top of them — so it only pays when expenses are smaller than the allowance. Rent-a-room is the generous one, but its scope is narrow: furnished accommodation in the landlord's OWN home only, never a buy-to-let. Gross receipts up to £7,500 are tax-free, the limit halves where the letting income is shared, and exceeding it triggers a CHOICE, not a cliff: opt into the scheme and pay tax on the excess over the limit (no expense deductions), or fall back to the normal income-less-expenses computation — whichever leaves less taxable.
- Total non-savings income: salary and rental profit aggregate
- 30,000 + 12,000 = £42,000
- Taxable after the personal allowance
- 42,000 - 12,570 = £29,430
- All within the basic-rate band, so tax due
- 29,430 * 0.2 = £5,886
- Of which the rental slice alone costs
- 12,000 * 0.2 = £2,400
The rent lands on TOP of the salary in the same bands — had the salary been higher, the same £12,000 of rent would have been taxed at the higher rate. There is no separate property schedule.