For the 2026/27 UK tax year, an individual receives £700 of gross rental income from letting out a driveway for parking, outside the Rent a Room Scheme, and has £150 of allowable expenses relating to that income. Under HMRC's property allowance rules, which statement is correct?
- They must deduct the £150 of actual expenses from the £700 income and cannot instead claim the property allowance
- Because the £1,000 property allowance exceeds the £700 gross income, they can claim full relief and have no property income to report, but they cannot also deduct the £150 of expenses on top of the allowance
- They can claim both the £1,000 property allowance and the £150 of actual expenses, reducing taxable property income below zero
- The property allowance does not apply to driveway or parking income, only to residential letting income
Why B? And why not the others?
Correct answer: B. Because the £1,000 property allowance exceeds the £700 gross income, they can claim full relief and have no property income to report, but they cannot also deduct the £150 of expenses on top of the allowance
The property allowance lets an individual shelter up to £1,000 of gross property income a year tax-free; because the £1,000 allowance exceeds the £700 of gross income in this scenario, it covers the income in full, leaving nothing to report, but HMRC's rules do not permit also deducting the £150 of actual expenses on top of the allowance, so the option describing full relief without a separate expense deduction is correct. The option requiring the £150 of expenses to be deducted instead is wrong because claiming the property allowance is an alternative to deducting expenses, not a requirement to use expenses first. The option allowing both the full allowance and the expenses together is wrong because the allowance and actual expenses are mutually exclusive against the same income, exactly as with the trading allowance. The option restricting the property allowance to residential letting only is wrong because the allowance applies broadly to property income, including casual income such as driveway or parking letting, not solely to residential tenancies.
Source: GOV.UK: Tax-free allowances on property and trading income