The Rent a Room Scheme offers a straightforward way for homeowners to earn tax‑free income by letting out a furnished room in their main residence. Under the scheme, you can receive up to £7,500 per tax year without paying any tax on that income. If your earnings stay below this limit, the exemption applies automatically and you do not need to report anything to HMRC. If you prefer, you can opt out of the scheme and instead declare your rental income and expenses under the normal property income rules.
To qualify, the arrangement must involve furnished accommodation—typically a spare bedroom rented to a lodger living in your home and have use of shared living spaces. The scheme is designed to simplify both the tax position and the administrative burden for people earning modest amounts from renting out part of their home. Where a property is jointly owned, the £7,500 limit is split equally, giving each owner a tax‑free allowance of £3,750.
The limit covers not only rent but also any additional payments you receive from the lodger, such as charges for meals, cleaning, laundry, or other services. If your gross receipts exceed £7,500, you must either:
• pay tax on the amount above the threshold under the Rent a Room rules, or
• opt out of the scheme and calculate your taxable profit using the standard property income method (income minus allowable expenses).
Choosing the most beneficial approach depends on your level of income and expenses, so reviewing both options can help ensure you are taxed in the most efficient way.
