- Who can use the Rent a Room Scheme
- The limits
- What counts towards the 7,500 pounds
- Below the limit: nothing to do
- Above the limit: Method A or Method B
- The time limit for choosing
- Moving home during the year
- A quick decision guide
- Short-term lets
- Rent a Room vs the property allowance
- My verdict
- Frequently asked questions
The Rent a Room Scheme lets you earn up to 7,500 pounds a year tax-free from letting furnished accommodation in your own home, or 3,750 pounds if someone else also gets income from letting in the same property. Below the limit it's automatic; above it, you file a tax return and choose between being taxed on your actual profit or on receipts over 7,500 pounds.
Taking in a lodger is one of the simplest side incomes in the UK, and one of the most tax-friendly, and the Rent a Room Scheme makes a good chunk of it tax-free. But the rules have a few details that change the maths, and getting them wrong can mean paying tax you didn't need to, or missing tax you did: what counts as rent, what happens with joint owners, and the choice you make when income goes over the limit.
Who can use the Rent a Room Scheme
- You're a resident landlord: you let part of a property that's your only or main home.
- You provide furnished accommodation.
- You own your home or rent it. Tenants can use the scheme too.
- The home hasn't been converted into separate flats.
The limits
| Situation | Tax-free limit a year |
|---|---|
| Only you receive letting income from the property | 7,500 pounds |
| Someone else, such as a joint owner, also receives letting income from it | 3,750 pounds each |
| You let for only part of the year | Still 7,500 pounds (or 3,750 pounds) |
What counts towards the 7,500 pounds
Here's the detail that trips people up. The limit is on gross receipts, not profit. HMRC's helpsheet says gross receipts include payments for meals, goods and services such as cleaning or laundry. So if your lodger pays rent plus a contribution to bills or meals, add it all together. HMRC's example has a lodger paying rent of 10,400 pounds plus 200 pounds towards heating and light: gross receipts are 10,600 pounds.
Below the limit: nothing to do
If your gross receipts are under the limit, the exemption is automatic. You don't need to do anything. The one exception is a loss: if your costs are higher than your receipts, HMRC says it may be better to opt out and be taxed normally so you can record the loss. You'd tell HMRC within the time limit.
Above the limit: Method A or Method B
| Method A: actual profit | Method B: receipts over the limit | |
|---|---|---|
| Taxed on | Receipts minus expenses and capital allowances | Receipts minus 7,500 pounds (or 3,750) |
| Expenses | Deducted | Not allowed |
| Default | Yes, HMRC uses this automatically | Only if you tell HMRC |
| Can create a loss | Yes | No |
HMRC's worked example: Chris has gross receipts of 10,600 pounds and expenses of 9,000 pounds. Under Method A he's taxed on 1,600 pounds. Under Method B he'd be taxed on 3,100 pounds. Method A wins for Chris because his costs are high. For someone with low costs, Method B is usually better, because 7,500 pounds is more than their real expenses.
The time limit for choosing
You can switch method from year to year, but you have to tell HMRC within one year of the 31 January after the end of the tax year. If you chose Method B in the past and your costs have gone up, you must tell HMRC to go back to Method A: it doesn't switch back by itself.
Moving home during the year
If you let a room in your old home and then in your new home in the same tax year, HMRC's helpsheet says you add the rent from both together. You still get one limit for the year, 7,500 pounds or 3,750 pounds if shared, not one per home.
A quick decision guide
- Receipts under the limit, no loss: do nothing, it's tax-free.
- Receipts under the limit but a loss: consider opting out to record it.
- Receipts over the limit, low costs: Method B is usually better.
- Receipts over the limit, high costs: Method A is usually better.
Short-term lets
If you only occasionally rent out part of your home through short-term rental apps, GOV.UK says to check whether you need to tell HMRC about the income. Whether the Rent a Room Scheme applies depends on the arrangement, so check before assuming it covers holiday-style lets.
Rent a Room vs the property allowance
Separately from the Rent a Room Scheme, there's a 1,000 pound property allowance for other property income. You can't use both on the same income: GOV.UK says the property allowance doesn't apply where you're using the Rent a Room Scheme. For a lodger in your home, Rent a Room is usually the more generous of the two, since its limit is seven and a half times bigger.
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My verdict
If you have a lodger and your total receipts, including bills and meals, are under 7,500 pounds, it's tax-free and needs no paperwork. Above that, compare Method A and B every year, because the best choice changes with your costs. For other side income in your home, see property management software, and if you're thinking bigger, what it costs to start a business in the UK.
Frequently asked questions
How much can I earn tax-free under the Rent a Room Scheme?
Up to 7,500 pounds a year, or 3,750 pounds if someone else also receives letting income from the same property.
Do bills and meals count towards the Rent a Room limit?
Yes. Gross receipts include payments for meals, goods and services such as cleaning or laundry.
Do I need to tell HMRC if I earn under 7,500 pounds?
No. The exemption is automatic below the limit, unless you want to opt out, for example to claim a loss.
Can tenants use the Rent a Room Scheme?
Yes. You can be a resident landlord whether or not you own your home.
Can I deduct expenses under the Rent a Room Scheme?
Not if you're taxed on receipts over the limit (Method B). Under Method A you're taxed on actual profit after expenses.
