Rent a Room Scheme: Earn £7,500 Tax-Free From a Lodger

The rent a room scheme lets you receive up to £7,500 a year tax-free from letting furnished accommodation in your only or main home. If everything the lodger pays you adds up to £7,500 or less, the income is exempt automatically — you do not have to claim it, report it or keep receipts. Go over £7,500 and you choose between deducting your actual expenses or simply deducting the £7,500 and paying tax on the rest.

Key points

• The limit is £7,500 per property, per tax year — not per lodger, and it is not reduced if you only let for part of the year.
• If two or more people receive the income from the same home, each gets £3,750.
• Gross receipts count: rent plus anything for bills, meals, cleaning, laundry or parking.
• Above £7,500, the alternative basis (receipts minus £7,500) usually wins unless your allowable expenses exceed £7,500.
• It can cover letting a room on a short-let platform while you still live there, but not letting the whole home while you are away.

The £7,500: what rent a room relief actually covers

Rent a room relief applies to income from letting furnished living accommodation in a home you live in as your only or main residence during the letting. You do not have to own it — tenants can use the scheme too, provided their own tenancy agreement allows subletting.

The relief works on gross receipts, not profit. That means you add up everything the lodger hands over before you compare it with £7,500:

• the rent itself
• any separate payment towards gas, electricity, water, broadband or council tax
• charges for meals, cleaning, laundry or use of a parking space

So a lodger paying £600 a month rent plus £60 a month towards bills is producing £7,920 of gross receipts, not £7,200 — which puts you over the limit even though the rent alone would not.

One feature people miss: the £7,500 is not time-apportioned. A lodger who moves in on 1 January and pays £2,400 by 5 April is still comfortably inside the full £7,500 for that tax year.

When you cannot use the scheme

HMRC excludes several situations. You cannot use rent a room relief if:

• your home has been converted into separate self-contained flats and you let one of them
• you let unfurnished accommodation
• the space is let as an office or for a business (a lodger who happens to answer work emails in their room is fine; letting a room as trade premises is not)
• you let the whole home while you live somewhere else
• the property is outside the UK

If you fall outside the scheme, the letting is taxed as ordinary property income: rent less allowable expenses, with the option of the £1,000 property allowance instead of expenses. Our rental income tax calculator handles that route.

Do you have to tell HMRC?

If your gross receipts are £7,500 or less (or £3,750 or less where the income is shared) and you have no other reason to file, the exemption is automatic and there is nothing to report. If receipts exceed the limit, the letting has to go on a Self Assessment return, and you will need to register for Self Assessment if you are not already in the system.

Note for 2026/27: Making Tax Digital for Income Tax starts in April 2026 for people with gross self-employment or property income over £50,000, so digital record-keeping may apply if your lodger income sits alongside other property or trading income.

Shared with a partner, spouse or co-owner: the £3,750 rule

The £7,500 belongs to the property, not to you. If more than one person receives income from letting space in the same home, the limit is halved to £3,750 each — regardless of how many people are involved or how the rent is split.

A couple letting a spare room for £700 a month receive £8,400 between them. If they share it equally, each has £4,200 of receipts against a £3,750 limit, so each has £450 taxable under the alternative basis. If instead the rent is paid entirely to one partner, that partner has £8,400 against a limit of… still £3,750, because the income is being shared in substance where the property is jointly owned and both are entitled to it. Where only one person is genuinely entitled to the income — for example a sole owner who lets a room and keeps all the rent — the full £7,500 applies.

This is where couples often get it wrong. The practical test is who is entitled to the letting income, not whose bank account it lands in. The rent a room relief decision tool walks through the ownership and entitlement questions in order.

Scheme versus expenses: which leaves you better off

Once receipts pass the limit you have two methods.

Method A — the normal basis

Work out taxable profit the usual way: receipts minus the business proportion of your allowable costs. That can include a share of heating, lighting, water, insurance and council tax, the cost of food if you provide meals, cleaning, and the replacement cost of furnishings. Mortgage interest is restricted — you get a basic-rate (20%) tax reducer rather than a full deduction — which blunts Method A considerably for anyone with a mortgage.

Method B — the alternative basis

Deduct a flat £7,500 (or £3,750) from gross receipts and pay tax on what is left. No expenses, no receipts, no apportionment. You have to elect for this; it is not automatic once you are over the limit.

The comparison

The pattern is simple: the alternative basis wins unless your allowable expenses come to more than £7,500 (or £3,750 on the shared limit). For a single lodger in a normal family home, expenses of that size are rare.

Worked example

Marcus is employed on a £46,000 salary in England and lets a furnished room for £550 a month, plus £75 a month towards bills.

• Gross receipts: (£550 + £75) × 12 = £7,500
• That is exactly at the limit, so the income is fully exempt and nothing is reported.

The following year he raises the rent to £600 plus £75 of bills, so receipts become £8,100.

• Alternative basis: £8,100 − £7,500 = £1,500 taxable
• His salary already uses the £12,570 Personal Allowance and sits in the basic-rate band, so the £1,500 is taxed at 20% = £300
• Method A: apportioned bills, insurance and cleaning of £2,900 would leave £5,200 taxable — £1,040 of tax. The alternative basis saves him £740.

If Marcus's salary had been £52,000, that same £1,500 would fall in the higher-rate band at 40% (£600). In Scotland, non-savings income is taxed at Scottish rates, so the same £1,500 could be taxed at 20%, 21%, 42%, 45% or 48% depending on where his total income sits. Run your own figures through the rent a room scheme calculator to see which basis produces the lower bill.

Rent a room and Airbnb: short lets at home

Rent a room relief is not restricted to a traditional lodger on a long agreement. It can cover short stays booked through a platform, provided the accommodation is furnished, is in your only or main home, and you are letting part of it rather than the whole place while you are away. Letting your spare room for weekends while you carry on living there generally qualifies; handing over the entire house for a fortnight while you are on holiday does not.

Two points matter for short lets:

• Everything the guest pays counts. Cleaning fees and any service charges you receive form part of gross receipts. Platform commission deducted before the money reaches you is not receipts, but you cannot deduct anything else under the alternative basis.
• Mixed use is common. If part of the year is room-only letting from your home and part is whole-property letting, only the qualifying part can use the relief; the rest is ordinary property income.

Platforms report host earnings to HMRC, so short-let income is visible. Our guide to Airbnb tax in the UK covers the whole-property position, the £1,000 property allowance and what happens when the letting starts to look like a trade.

Opting out, electing in and the deadlines

There are two elections to be aware of, and both have time limits.

Electing for the alternative basis

If receipts exceed the limit and you want the flat £7,500 deduction rather than actual expenses, you must tell HMRC — normally by entering it on your tax return. The election takes effect for that tax year and continues for later years until you withdraw it or you have a year where receipts fall below the limit. The deadline is one year and ten months after the end of the tax year, so 31 January 2029 for 2026/27.

Opting out of the exemption

Sometimes the automatic exemption is unhelpful. If your receipts are under £7,500 but your genuine expenses are higher — say you replaced furniture and redecorated — you would make a loss on the normal basis, and a property loss can be carried forward against future property profits. You can elect for the exemption not to apply so that the loss is recognised. Same time limit applies.

Other things to check before taking a lodger:

• You cannot combine reliefs. The £1,000 property allowance cannot be used on income already covered by rent a room relief.
• Council tax. A lodger normally ends a 25% single person discount.
• Permission. Mortgage conditions, buildings and contents insurance, leasehold terms and a tenancy agreement may all need checking first.
• Capital Gains Tax. HMRC generally accepts that a lodger who shares your living space does not restrict Private Residence Relief when you sell.
• Benefits. Lodger income is treated differently across benefits and can affect entitlement.

What to do next

Add up everything a lodger or guest would pay you over a full tax year, including bills and extras, and compare it with £7,500 (or £3,750 if the income is shared). If you are under, there is nothing to do. If you are over, use the rent a room scheme calculator to compare the alternative basis with claiming real expenses, and the rent a room relief decision tool if you are unsure whether your arrangement qualifies at all. To see how the taxable slice stacks on top of your salary or pension, put the total through the income tax calculator. Full HMRC detail is in the Rent a Room Scheme guidance on GOV.UK.