Letting a spare room to a lodger is one of the most tax-efficient ways to earn extra income in the UK. Under the Rent-a-Room scheme, you can receive up to £7,500 a year completely tax-free, with no expenses to track and often no tax return to file.
The catch is in the details. The limit is based on gross rent, not profit. It’s halved if you share the income. And going over it, even slightly, changes what you have to report. This guide explains who qualifies, how the two calculation methods work, and when you need to tell HMRC.
What is the Rent-a-Room scheme?
Rent-a-Room is an HMRC relief for people who let furnished accommodation in their own home. For the 2026/27 tax year, the first £7,500 of income from letting it is tax-free. If you receive £7,500 or less, the relief applies automatically.
The scheme is available to homeowners and to tenants who sublet a room, as long as the home is their only or main residence.
Who qualifies?
You can use the scheme if you let furnished accommodation in the home you live in. That usually means a lodger, but it can also cover bed-and-breakfast or guest-house style lettings in your home.
You can’t use it if:
- The accommodation is a self-contained flat that’s separate from your living space
- The room is let unfurnished
- It’s let as an office or for business use
- You’re living abroad while you let your UK home
- It’s a buy-to-let property you don’t live in
Renting out a property you don’t live in? See our landlord tax return guide instead.
The £7,500 limit — and the £3,750 split
The limit is per home, not per person. If you share the rental income with someone else — a partner or joint owner, for example — the limit is £3,750 each. Two owners don’t get £7,500 each.
The limit applies to gross receipts: the rent plus anything else the lodger pays you, such as for meals, cleaning, laundry, or heating and lighting. It’s not your profit after costs.
If your rent is £7,500 or less
The income is exempt automatically. If you don’t otherwise need to file a Self Assessment return, you don’t need to tell HMRC. If you already file a return — because you’re self-employed, for example — you can usually leave the exempt lodger income off it.
One reason to opt out: if your expenses are higher than your rent and you’d make a loss, you might prefer to use normal property rules so you can record that loss.
If your rent is over £7,500: Method A vs Method B
Once your gross receipts go above the limit, you need to file a Self Assessment return. You then choose whichever method gives you the lower tax bill:
- Method A (normal rules): pay tax on your actual profit — rent minus allowable expenses
- Method B (Rent-a-Room basis): pay tax on gross receipts minus £7,500, with no expenses claimed
Worked example
Sarah lets a room for £800 a month and charges £50 a month for bills. Her gross receipts for the year are £10,200. Her actual costs for the room are £1,500.
- Method A: £10,200 − £1,500 = £8,700 taxable
- Method B: £10,200 − £7,500 = £2,700 taxable
Method B wins comfortably. For a single room in your own home, it usually does — real expenses rarely come close to £7,500.
To use Method B, you tell HMRC on your tax return. If you want to switch methods, you have until one year after the 31 January filing deadline for that tax year to make or withdraw the election.
Rent-a-Room vs the £1,000 property allowance
You can’t use both on the same income. For a lodger in your own home, Rent-a-Room is almost always better because the limit is £7,500 instead of £1,000.
Does a lodger affect Capital Gains Tax when I sell?
Usually not. Having a lodger who shares your living space doesn’t normally reduce the private residence relief on your home. It’s different if part of the home is let as separate accommodation, so take advice if you’ve converted space into a self-contained flat.
Other things to check
- Your mortgage lender or landlord may need to give permission before you take a lodger
- Your home insurance may need updating
- Council tax: if you live alone and get the single-person discount, having a lodger usually ends it
- Benefits: lodger income can affect means-tested benefits, even if it’s tax-free
Need a hand with lodger income?
If your lodger income goes over £7,500, or you have rental income from other property too, SmartFiling’s ICAEW chartered accountants can work out the cheapest method and file your return for a fixed fee. See our Landlord Accountant service or get a free quote — we’ll reply within one working day.
Frequently asked questions
Can I use Rent-a-Room for Airbnb?
Yes, if you let a furnished room in the home you live in. It doesn’t apply if you let a whole separate property or self-contained flat.
Do I need to register for Self Assessment for a lodger?
Not if your gross receipts are £7,500 or less and you have no other reason to file. Above that, yes — register by 5 October after the end of the tax year.
Can I claim expenses under Rent-a-Room?
No. Under Method B, the £7,500 replaces all expenses. If your costs are higher, use Method A instead.
