Rent-a-Room Scheme: How to Earn £7,500 Tax-Free
How the Rent-a-Room scheme works in the UK. Earn up to £7,500 tax-free by letting a furnished room in your home — eligibility, limits, and when to opt out.
Key Actions
- Check if your letting arrangement qualifies for Rent-a-Room
- Calculate whether the £7,500 allowance or claiming expenses gives you a better result
- Keep records of income even if it's below the threshold
- Opt in or out through your Self Assessment return if needed
- Review your situation annually as income changes
The Rent-a-Room scheme lets you earn up to £7,500 per year tax-free from letting a furnished room in your home. It's one of the higher tax-free thresholds available to individuals, and it's surprisingly simple to use.
This guide explains who qualifies, how the scheme works, and when you might be better off not using it.
How the Scheme Works
If you let a furnished room in your main home — the home you live in — the first £7,500 of income is completely tax-free. You don't need to tell HMRC about it, and you don't need to file a tax return for this income alone.
The relief is automatic. If you earn less than £7,500 from your lodger, there's nothing to do.
Key Facts
| Detail | Amount |
|---|---|
| Tax-free threshold | £7,500 per year |
| Shared threshold | £3,750 each (if you split income with a partner) |
| What's covered | Furnished room in your main home |
| Automatic? | Yes, if income is below the threshold |
Who Qualifies
You can use the Rent-a-Room scheme if you:
- Live in the property as your main home (you can own it or rent it yourself)
- Let a furnished room — the room needs to have at least basic furniture
- Are a resident landlord — you live in the same property as your lodger
What Counts
- Renting a spare bedroom to a lodger
- Running a small bed and breakfast in your home
- Hosting guests through short-term letting platforms (such as Airbnb) in your own home
- Providing meals or cleaning as part of the arrangement
What Doesn't Count
- Letting a separate flat — even if it's in the same building (e.g., a converted basement flat with its own entrance)
- Renting out your entire home while you're away
- Letting an unfurnished room
- Renting rooms in a property you don't live in — that's standard rental income
The £7,500 Threshold
The threshold applies to your gross income — that's the total amount you receive, before any expenses.
What counts as income:
- Rent payments from your lodger
- Payments for meals, laundry, or cleaning if included
- Any other charges related to the room
Example: You charge your lodger £600 per month including bills. Your annual income is £7,200. This is below £7,500, so it's entirely tax-free. No action needed.
Sharing the Income
If you jointly receive the income with someone else — typically a partner or spouse — the threshold is split equally: £3,750 each.
Example: You and your partner let a room for £500 per month (£6,000 per year). You're each treated as receiving £3,000. Both are below the £3,750 individual threshold, so it's tax-free for both of you.
What If You Earn More Than £7,500?
If your income exceeds the threshold, you have two choices:
Method A: Use the Rent-a-Room Allowance
- Deduct £7,500 from your total income
- Pay tax on the remainder
- You cannot claim any expenses
Example: You earn £10,000 from your lodger. Taxable amount = £10,000 − £7,500 = £2,500.
Method B: Claim Actual Expenses
- Calculate your actual expenses (proportion of mortgage interest, utilities, council tax, insurance, etc.)
- Deduct expenses from your income
- Pay tax on the profit
- You cannot use the £7,500 allowance
Example: You earn £10,000 and have £8,200 in allowable expenses (proportioned to the room). Taxable profit = £10,000 − £8,200 = £1,800.
In this case, Method B gives a lower tax bill.
How to Choose
| Your Situation | Better Option |
|---|---|
| Income under £7,500 | Automatic — no tax, no action needed |
| Income over £7,500, low expenses | Method A (Rent-a-Room allowance) |
| Income over £7,500, high expenses | Method B (claim actual expenses) |
Calculate both and choose whichever gives you the lower taxable amount.
How to Opt In
If your income exceeds £7,500 and you want to use the allowance (Method A):
- File a Self Assessment return
- Tick the Rent-a-Room box on the property pages
- Enter your gross income — the £7,500 deduction is applied automatically
If you want to use Method B instead, you need to opt out of the scheme by completing the full property pages with your income and expenses. See our guide on filing your first tax return as a landlord for help with the SA105 form.
Rent-a-Room vs Property Allowance
These are two different reliefs, and you cannot use both for the same income.
| Relief | Amount | Applies To |
|---|---|---|
| Rent-a-Room scheme | £7,500 | Furnished room in your main home |
| Property allowance | £1,000 | Any rental income |
If you qualify for Rent-a-Room, it's almost always more beneficial — the threshold is 7.5 times higher.
When the property allowance might apply instead: If you rent out a room that doesn't qualify for Rent-a-Room (e.g., unfurnished), the £1,000 property allowance is your fallback.
Practical Considerations
Your Mortgage
Check your mortgage terms before taking in a lodger. Most residential mortgages allow it, but some require you to inform your lender. You generally don't need to switch to a buy-to-let mortgage if you're living in the property and letting a room.
Insurance
Tell your home insurance provider. Taking in a lodger can affect your buildings and contents cover. Most insurers accommodate it without a significant premium increase, but failing to disclose could invalidate a claim.
Council Tax
A lodger doesn't usually affect your council tax. If you live alone and claim a 25% single person discount, taking in a lodger means you'll lose that discount — but the rental income typically more than compensates.
Benefits
Rental income from a lodger can affect means-tested benefits. If you receive Universal Credit or Housing Benefit, check how lodger income is treated before committing.
Tenancy Agreements
Even with a lodger in your own home, it's good practice to have a written agreement covering:
- Rent amount and payment dates
- What's included (bills, meals, internet)
- Notice period for either side
- House rules (guests, smoking, quiet hours)
As a resident landlord, your lodger has fewer legal protections than a standard tenant — but a clear agreement prevents misunderstandings.
Frequently Asked Questions
Does Airbnb income qualify?
Yes, if you're letting a room in your main home and it's furnished. Short-term lets through platforms like Airbnb qualify for Rent-a-Room as long as the property is your primary residence. If you rent out an entire separate property through Airbnb, that's standard rental income — not Rent-a-Room.
Do I need to tell HMRC if I earn under £7,500?
No. The exemption is automatic. You only need to file a Self Assessment return for this income if it exceeds £7,500 (or £3,750 if shared). However, it's still worth keeping basic records — see our landlord tax records checklist for what to track.
Can I use Rent-a-Room if I'm a tenant myself?
Yes. You don't need to own the property — you just need to live there as your main home. Check your tenancy agreement first, as your landlord may need to give permission for sub-letting.
What if I only let the room for part of the year?
The £7,500 threshold applies to the full tax year regardless of how many months you let the room. There's no pro-rata reduction.
Can I let more than one room?
Yes. The £7,500 threshold covers your total income from all rooms in your home combined. If you let two rooms for £400 each per month, your annual income is £9,600 — over the threshold.
This guide is for informational purposes only and does not constitute tax, legal, or financial advice. Tax rules change frequently. Always verify current requirements on GOV.UK or consult a qualified accountant for your specific situation.
Official Sources
- Rent a Room in your home — GOV.UK
- Rent a Room scheme: claim the tax exemption — GOV.UK
- Income Tax when you rent out a property — GOV.UK