The £1,000 Trading and Property Allowances: Are They Still Worth Using in 2025/26?
For side hustlers, casual landlords, and anyone earning small amounts of additional income, the UK’s £1,000 trading allowance and £1,000 property allowance have offered a simple way to avoid the admin of self-assessment and tax reporting — but are they still worth using in 2025/26?
With the personal allowance frozen, the dividend allowance now reduced to just £500, and more individuals drawn into self-assessment each year, it’s important to review how these two allowances work, when they apply, and whether you should rely on them or take a different approach.
In this article, we break down what each allowance covers, how they interact with other income, and who benefits most from using them in the current tax year.
What are the £1,000 trading and property allowances?
The trading allowance and property allowance each let you receive up to £1,000 per year of gross income from certain sources without paying tax or reporting it to HMRC.
They are available to individuals, not companies, and apply automatically unless you choose to opt out and declare the income formally.
Here’s how they work:
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Trading allowance: Covers income from self-employment or casual services (e.g. tutoring, delivery driving, selling on eBay, freelancing)
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Property allowance: Covers rental income from property you personally own (e.g. lodgers, holiday lets, casual short-term rentals)
If your gross income from either source is less than £1,000, it’s exempt from tax and does not need to be reported. If the income exceeds £1,000, you can either deduct the £1,000 allowance instead of actual expenses, or choose to report the full income and claim allowable expenses instead.
You can use both allowances in the same tax year if you have income from both types of source.
Who benefits most in 2025/26?
With tax thresholds frozen and reporting requirements tightening, the allowances still have a clear use — but they are more limited than they were a few years ago.
You benefit most if:
- You earn small, occasional income from services or rental
- You don’t want to register as self-employed or file a tax return unnecessarily
- Your actual expenses are lower than £1,000, so claiming the allowance gives you a better result
- You want to keep your tax affairs simple and avoid triggering Making Tax Digital for Income Tax Self-Assessment (MTD for ITSA) requirements in the future
Examples of where the allowances work well in 2025/26:
- You occasionally sell vintage items on Etsy and earn £600 this year
- You rent out a driveway for £900 a year through an app like JustPark
- You let a room on Airbnb for a few weekends and earn £950 gross
- You do some one-off freelance web design work for £800
- You rent out garden office space for £750 to a friend’s business
In all of these cases, the income is exempt and doesn’t need to be declared, assuming no other relevant income applies.
When the allowances might not be your best option
If your gross income exceeds £1,000 from either trading or property, you have a decision to make:
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Deduct £1,000 as a flat allowance, and pay tax on the balance
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Declare all income and deduct actual expenses instead
You should calculate which option leaves you with the lower taxable profit.
For example:
- If you earn £2,000 from eBay sales and have no real costs, using the £1,000 trading allowance is better.
- If you earn £2,000 from freelance work but had £1,400 in business-related expenses (e.g. software, materials, travel), you’ll be better off declaring the actual expenses instead of using the flat allowance.
This is especially important now that more people are hitting the £1,000 limit simply due to inflation — what was once a threshold for side-hustlers now affects part-time earners, tutors, creatives, and hobbyist traders.
Property income: Don’t confuse the £1,000 allowance with Rent-a-Room Relief
A common mistake is to confuse the property allowance with Rent-a-Room Relief, which applies when you let part of your own home to a lodger. Rent-a-Room Relief is a separate scheme and offers up to £7,500 tax-free, subject to conditions.
You cannot claim both for the same income — you must choose one or the other.
- If you let a room in your main residence, Rent-a-Room Relief may offer a much higher tax-free threshold.
- If you let a garage, annex, or driveway — or rent out a second property casually — the property allowance applies instead.
Watch out for income reporting thresholds
Even if the £1,000 allowance exempts your income from tax, you may still need to register for self-assessment if your combined untaxed income exceeds £2,500 or if your total income (including employment, pensions, etc.) crosses certain thresholds.
In particular, you must register if:
- Your gross property income is over £10,000
- Your gross trading income is over £1,000
- You need to declare untaxed income over £2,500 from any source
From April 2026, HMRC’s Making Tax Digital for Income Tax rules will also apply to anyone with total self-employment and/or property income over £50,000 — meaning quarterly digital submissions will be mandatory. These allowances do not exempt you from MTD if your income exceeds that threshold.
Should you rely on the allowance long-term?
If you regularly earn over £1,000 from self-employment or property, you should consider registering formally, keeping proper records, and preparing to use accounting software from April 2026 onwards.
The allowances are ideal for small, infrequent income streams — but they are not a replacement for a full tax return if your business or rental activity becomes consistent, profitable, or part of your wider income planning.
They also don’t allow you to:
- Carry forward losses
- Claim capital allowances or mortgage interest relief
- Register for VAT
- Contribute business profits into a pension
- Show business income for mortgage or loan applications
So while they offer simplicity, they come with limitations — especially if you want to grow the income stream or integrate it into your wider tax planning.
Final thoughts
The £1,000 trading and property allowances still offer a useful buffer for low-level income in 2025/26. They’re simple, automatic, and helpful for casual earners — but they aren’t a long-term strategy for anyone with ambitions to grow their business or rental activity.
If you’re earning over £1,000 from any side income — even occasionally — now is a good time to get advice on whether to register, track expenses, and take a more formal approach to tax compliance. With new reporting obligations coming in from 2026 under MTD, waiting until the rules change could mean rushing to catch up.
At Merranti, we help individuals and small business owners understand where they stand — and how to take advantage of allowances while preparing for what’s next.
Not sure whether you should be using the allowances or registering for self-assessment?
Speak to Merranti Accounting for a personalised income review before 5 April 2026.
