How does the Rent a Room scheme work for letting out a spare room?

Full answer

The Rent a Room scheme is a simple, automatic tax relief designed to encourage homeowners and tenants to let out spare rooms, without the administrative burden of a full property letting business. **The £7,500 threshold** Gross rental income (before expenses) from letting furnished accommodation in your own main residence, up to £7,500 in a tax year, is entirely tax-free under the scheme -- if you are the ONLY person receiving that income (rather than splitting it with a partner or joint owner), the full £7,500 applies to you alone; if income is shared between two or more people, the threshold is halved to £3,750 EACH. **Key qualifying conditions** The accommodation must be furnished, and it must be part of your ONLY or main home, where you also live -- letting out a separate, wholly self-contained annexe you do not otherwise live in, or a second property you do not occupy, does not qualify for Rent a Room relief, though it might still qualify for normal property letting rules and allowances instead. **What happens above £7,500** If gross rental income exceeds £7,500 (or £3,750 if shared), you have a choice: either pay tax on the income ABOVE the threshold under the simplified Rent a Room method (with no deduction for actual expenses against that excess), or opt out of Rent a Room altogether and instead be taxed under the normal property income rules, deducting your actual allowable expenses (which may work out better if you have significant costs, such as a share of utility bills or wear and tear on furnishings). **Worked example** Someone lets a furnished spare room in their main home for £9,000 a year in rent, with no other property income. Under Rent a Room, the first £7,500 is tax-free, and the remaining £1,500 is taxed as income at their marginal rate, with no expense deductions available against that excess -- alternatively, they could opt out of Rent a Room and instead deduct their actual allowable expenses from the full £9,000, which might produce a lower taxable figure if their real costs are substantial. **Interaction with lodger arrangements and benefits** Rent a Room income and its tax-free threshold are separate from any effect a lodger might have on means-tested benefits or council tax discounts, which are assessed under entirely different rules and should be checked separately. **Practical tip** If your gross letting income from a room in your own home is close to or above £7,500, compare the tax outcome under Rent a Room against opting out and claiming actual expenses instead, since whichever produces the lower taxable figure depends on how substantial your real costs are.

Try the calculator

More answers

• Do I need to declare side hustle income under £1,000 a year?