What is the Rent a Room Scheme and how much can I earn tax-free?

Full answer

The Rent a Room Scheme is aimed specifically at homeowners or tenants who let out a spare furnished room in the property that is their own main residence, offering a much more generous tax-free threshold than the general property income allowance. **The £7,500 threshold** Gross rental income (before expenses) of up to £7,500 a year is entirely tax-free under the scheme, with no need to report it if that is your only relevant income and it stays under the threshold -- if you share the letting income with a partner, spouse or another joint owner of the property, the threshold halves to £3,750 each. **What qualifies** The accommodation must be furnished and in your main home (not a separate buy-to-let property), and can include letting to lodgers, or income from a platform like Airbnb for short lets of a room in your own home -- letting an entire separate property, even if furnished, does not qualify for Rent a Room relief. **Above the threshold: two options** If your gross rental income exceeds £7,500 (or £3,750 if shared), you must choose between: the Rent a Room method, where you pay tax on the excess above the threshold with no expense deductions allowed, OR the normal property income method, where you declare the full rental income and deduct actual allowable expenses (bills, insurance, wear and tear) -- whichever produces a lower tax bill depends on your actual costs relative to income. **Automatic vs elected** If your gross income is below the threshold, the exemption applies automatically with no action needed; if you exceed it and want to use the Rent a Room method rather than actual expenses, you must actively elect for it on your Self Assessment return. **Worked example** Someone lets a room for £180 a week (£9,360 a year) with minimal costs. Using the Rent a Room method, only £1,860 (the amount above £7,500) is taxable. If their actual expenses were only £200, the normal method would leave £9,160 taxable -- the Rent a Room method is clearly better here. **Interaction with mortgage and insurance** Letting a room typically does not affect a standard residential mortgage, but check your mortgage terms and buildings/contents insurance, since some lenders and insurers require notification if you take in a lodger. **Practical tip** Compare both methods each year if your income is close to or above the £7,500 threshold, since the better option can change year to year depending on how your actual expenses move relative to your rental income.

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