Rent a Room Scheme Guide

The Rent a Room Scheme lets you earn up to £7,500 a year tax-free from letting furnished accommodation in your own home, halved to £3,750 if someone else, such as a partner or joint owner, also receives income from letting the same property. It is a completely different regime from letting a separate rental property, and it only applies where you are letting out space in the home you actually live in.

This guide covers who can use the scheme, how the exemption and thresholds work, the choice between the two methods of working out tax once you go over the threshold, and how it interacts with other income you might have.

Eligibility

You can use the Rent a Room Scheme if you are a resident landlord letting furnished accommodation in your main home, whether you own it or rent it yourself, or if you run a bed and breakfast or guest house from your home. The key requirement is that you live in the property alongside your lodger or lodgers; it is not available for a property you own but do not live in, and it is not available for a home that has been converted into separate self-contained flats, since at that point you are letting a separate dwelling rather than a room in your own home.

The accommodation must be furnished. If you let an unfurnished room, the income falls under the normal property income rules instead, covered in our tax on rental income guide, rather than under Rent a Room.

A common scenario is a homeowner taking in a lodger for extra income, or a family letting a spare room to a student for the academic year. Both qualify, provided the letting is genuinely of space within the home you live in and not, for example, an annexe let as a fully separate unit with its own entrance and facilities, which can fall outside the scheme depending on how self-contained it is.

Exemption amount

If your gross receipts from letting, including any amounts you charge for related services such as meals, cleaning or laundry, are £7,500 or less in the tax year (6 April to 5 April), the exemption is automatic. You do not need to report the income to HMRC or do anything else, even if you would otherwise need to file a Self Assessment return for other reasons.

The threshold is halved to £3,750 if someone else also receives income from letting accommodation in the same property during the same period, for example a spouse or joint owner who separately takes in a second lodger. This halved threshold applies per person sharing the income, not as a single pooled figure, so two joint owners each get £3,750 rather than splitting a single £7,500 allowance in some other proportion.

If your gross receipts go over the relevant threshold, the automatic exemption stops applying and you must complete a tax return for that year, even if you have never needed to file one before. Going over the threshold does not mean you lose the scheme's benefit entirely, though. It means you move to a choice between two ways of calculating what you owe, covered next.

Method A vs Method B

Once your receipts exceed the threshold, HMRC gives you two ways to work out the tax due, and you can choose whichever suits your numbers better:

Method A taxes your actual profit, calculated in the normal way for a rental business: total receipts less allowable expenses, such as a share of household bills, insurance, repairs and wear and tear on furnishings that relate to the letting. This is the default method HMRC applies automatically if you do not elect otherwise, and it tends to suit landlords with meaningful costs to set against the income, for example if you provide meals or have spent money specifically to accommodate a lodger.

Method B taxes your gross receipts over the threshold, meaning your total receipts minus £7,500 (or £3,750 if shared), with no deduction for expenses or capital allowances at all. To use this method you must actively elect for it with HMRC within the relevant time limit; it does not apply automatically. Method B tends to suit landlords with low or no real costs against the letting, since the simplified calculation avoids tracking and apportioning household expenses that might only save a small amount of tax under Method A anyway.

A worked example. Say you receive £9,000 in a tax year from a lodger, with allowable expenses (a fair share of utilities, insurance and wear and tear) of £900. Under Method A, taxable profit is £8,100 (£9,000 minus £900), and you pay tax on that at your marginal rate. Under Method B, taxable profit is £1,500 (£9,000 minus the £7,500 threshold), regardless of what you actually spent. In this example Method B produces a lower taxable figure because the expenses were modest relative to the £7,500 threshold; if your genuine costs had instead been, say, £3,000, Method A would likely come out ahead. Working out roughly what your actual expenses are before choosing is the simplest way to decide which method suits you.

Once you elect for Method B, it continues to apply in future years until you tell HMRC you want to switch back to Method A, so review the comparison each year your income or costs change materially rather than assuming an old election is still the right choice. If your income later drops back below the threshold, Method B stops automatically and the exemption applies again unless you specifically ask for your actual profit or loss to be assessed instead.

Interaction with other income

Rent a Room income sits separately from income you earn letting a different, non-resident property. If you own a rental property elsewhere as well as taking in a lodger at home, the two are reported and taxed under different rules: the separate property is taxed under the normal property income rules covered in our tax on rental income guide, while the lodger income can use Rent a Room if it qualifies.

You cannot use Rent a Room for one property and simply carry over any spare allowance to reduce tax on a different letting; the £7,500 or £3,750 threshold applies specifically to the home you live in. If you are weighing up whether taking in a lodger is worthwhile against other allowable expenses you could otherwise claim on the same portion of the home, our landlord allowable expenses guide is a useful comparison, since the wholly-and-exclusively test that governs normal rental expenses works differently from the simplified thresholds under Rent a Room.

It is also worth noting that Rent a Room income, once it exceeds the threshold, is added to your other income for the purposes of working out which tax band you fall into, in the same way normal rental profit is, so a lodger's rent can in principle push a landlord into a higher tax band depending on their overall income for the year.

How Property HQ helps

Property HQ helps you track rent received from a spare room alongside any separate rental properties you own, so if your circumstances change, for example you go from taking in one lodger to letting a whole property, you already have clean records to hand to your accountant when working out which regime applies and which method suits you best.

Disclaimer

This guide is general information for UK landlords, not tax advice. Check GOV.UK or a qualified adviser to confirm the current thresholds and which method suits your circumstances.