Rent a Room Scheme: Earn £7,500 Tax-Free from a Lodger (UK)

If you’ve got a spare room, the Rent a Room Scheme is one of the most generous tax breaks around, letting you earn up to £7,500 a year tax-free from a lodger. Here’s how it works and when it’s worth using.

What is the Rent a Room Scheme?

The Rent a Room Scheme lets you receive up to £7,500 per year tax-free from letting furnished accommodation in your own home. It’s designed to encourage people to take in lodgers, and it’s refreshingly simple: below the threshold, there’s nothing to report.

If two people share the income (say you and a partner), the allowance is halved to £3,750 each.

How it works

It depends on whether your rent is above or below £7,500:

• Below £7,500 gross? You’re automatically exempt, no tax, no Self Assessment, nothing to do.
• Above £7,500? You must file a Self Assessment return and choose between two methods:
  1. Pay tax on everything above £7,500 (ignoring actual expenses), or
  2. Pay tax on your actual profit (rent minus allowable expenses), without the £7,500 allowance

You pick whichever gives the lower tax bill. For most single-room lets with modest costs, Method 1 (the £7,500 allowance) wins.

Who can use it

You qualify if you:

• Let a furnished room in your main home
• Whether you own or rent (renters need the landlord’s permission)

It doesn’t apply to:

• Letting a whole property that you don’t live in (that’s normal landlord territory, see landlord tax)
• A home divided into separate self-contained flats
• Using the room as an office rather than living accommodation

Airbnb and short stays

Short-term lettings of a room in your own home, including via Airbnb, can qualify, as long as it’s a room in your main residence and not the entire property while you’re elsewhere. Letting a whole home, or a second property, falls outside the scheme.

When to opt out

Occasionally it’s better not to use the scheme. If your expenses are high relative to the rent, significant repairs, for example, paying tax on your actual (lower) profit might beat the £7,500 allowance. You can choose each year, so it’s worth a quick check if your costs are unusual. Our rental income tax calculator helps you compare.

A simple, valuable break

The Rent a Room Scheme is one of the easiest tax savings to claim, automatic, generous, and ideal if you’ve got a spare room. If your lodger income is above £7,500, or you also let other property, our accountants for landlords make sure you use the most tax-efficient method and handle your Self Assessment so it’s done right.