Rent a Room Scheme

If you let out furnished accommodation in your home, you may be able to earn up to £7,500 a year completely tax-free under the Rent a Room scheme. This relief applies whether you're an owner-occupier or a tenant, and it can significantly reduce or eliminate your tax bill on rental income from lodgers.

What is the Rent a Room scheme?

The Rent a Room scheme is a tax relief that allows you to receive rental income from letting furnished accommodation in your only or main home without paying tax on it, provided your total receipts don't exceed £7,500 in a tax year.

The scheme is designed to encourage people to let out spare rooms in their homes. It applies to both homeowners and tenants who sublet, as long as the accommodation is furnished and forms part of your main residence.

Who can use the scheme?

You can benefit from the Rent a Room scheme if you:

• Let out furnished accommodation in your only or main home
• Are an owner-occupier or tenant
• Receive rental income from lodgers or guests

The accommodation must be furnished for the scheme to apply. This means you need to provide at least basic furniture for your lodger's use.

The £7,500 tax-free allowance

The Rent a Room scheme provides a £7,500 annual tax-free allowance. This is the maximum amount of gross rental income (your total receipts before any expenses) you can receive without paying tax.

If you let out accommodation for only part of the year, you still get the full £7,500 allowance – it doesn't reduce if you only let for a few months.

However, if you share the income from letting with someone else (such as a joint owner), the £7,500 allowance is split between you. This means you would each get £3,750 tax-free.

How the scheme works

You have two options for how to apply the Rent a Room relief:

Option 1: Use the full £7,500 allowance

If your rental income is £7,500 or less, you don't pay any tax and you don't need to declare the income in your Self Assessment tax return (though you can if you wish to establish a record).

If your rental income exceeds £7,500, you can choose to deduct the £7,500 allowance from your total rental receipts. You'll then pay tax on anything above this amount, but you cannot claim any expenses against the rental income.

Option 2: Claim actual expenses instead

Alternatively, you can choose to calculate your profit in the normal way – deducting your actual expenses from your rental income and paying tax on the profit. You would choose this method if your allowable expenses are more than £7,500.

You cannot use both methods at the same time. You must choose one or the other.

What counts as rental income?

Your rental income includes:

• Rent payments from your lodger
• Payments for meals, goods or services you provide (such as cleaning or breakfast)

You need to add up all these receipts to work out if you're over or under the £7,500 threshold.

When to declare your income

If your total receipts from letting are £7,500 or less, you don't have to tell HMRC about the income or include it in your tax return.

If your receipts exceed £7,500, you must declare the income in your Self Assessment tax return for that tax year. You'll need to indicate which method you're using – either the Rent a Room scheme (with the £7,500 allowance) or the traditional calculation with actual expenses.

Making your choice

Once you've chosen which method to use (the £7,500 allowance or actual expenses), this choice normally applies for that tax year.

If you want to change your choice for a particular tax year, you need to notify HMRC. You should do this by the first anniversary of the 31 January following the end of the tax year. For example, for the 2025/26 tax year, you would need to notify HMRC by 31 January 2028.

What if you run a guest house or B&B?

If you provide substantial services to your guests beyond just accommodation (such as regular cleaning, meals, or other guest services), your activity may be treated as a trade rather than property income. The Rent a Room scheme still applies in these circumstances, but the tax treatment of income above the threshold may be different.

If you're running what amounts to a bed and breakfast or guest house business from your home, you should seek specific advice about whether you're trading and how this affects your tax position.

Record keeping

Even if your income is below the £7,500 threshold, it's good practice to keep records of:

• Rental income received
• Any expenses you incur
• Dates when the room was let

This helps you track whether you remain under the threshold and provides evidence if HMRC ever has questions about your letting activities.

Sources

• Rent a Room Scheme (Self Assessment helpsheet HS223)

This article provides general guidance based on current HMRC rules. For advice specific to your situation, speak to your accountant.