Rent a Room Scheme 2026: GBP 7,500 Tax-Free Lodger Income

Quick answer

In the 2026/27 tax year you can receive up to GBP 7,500 from letting furnished accommodation in your own home completely free of Income Tax under the Rent a Room Scheme. The figure is gross, so it includes any charges for meals or services. If two people share the income, each gets GBP 3,750. Go over the threshold and you pick whichever of two tax methods costs you less.

What the Rent a Room Scheme is

The Rent a Room Scheme is a long-standing relief that encourages people to let a spare room. It applies to furnished accommodation in your only or main residence -- the place where you actually live. A classic example is a lodger who rents a bedroom and shares your kitchen and bathroom, but it can also cover short-term and Airbnb-style lets of a room in the home you occupy.

The headline benefit is simple: gross receipts of GBP 7,500 or less in a tax year are exempt from Income Tax. You do not deduct expenses, you do not declare the income (unless you file a return for another reason), and there is no separate claim to make. The relief is automatic.

What counts towards the GBP 7,500

This is where people slip up. The threshold measures gross receipts -- everything the lodger pays you. That means rent plus any extra you charge for:

• Meals
• Cleaning
• Laundry
• Use of furniture or other services

So if you charge GBP 600 a month rent and GBP 50 a month for meals, your gross receipts are GBP 650 a month, or GBP 7,800 a year -- over the threshold, even though the rent alone is under it. Add up the full amount before deciding which side of the line you fall.

The scheme does not apply if the accommodation is unfurnished, is not in your main home, or is let as a separate self-contained unit that is really a buy-to-let in disguise. It also does not cover letting a whole property while you live elsewhere -- that is ordinary property income.

The shared-allowance trap

If more than one person receives income from letting rooms in the same property, the threshold is split. Instead of GBP 7,500 each, you each get GBP 3,750. This applies to couples, civil partners and any joint owners or joint landlords -- regardless of how you actually divide the money between you.

A couple letting one room and jointly receiving GBP 7,200 a year would each be assessed against GBP 3,750, not GBP 7,500 -- and would still be within the relief because their individual shares fall below GBP 3,750. But if one person alone received the GBP 7,200, that person would be comfortably under their full GBP 7,500. The arrangement matters, so think about who the income legally belongs to.

Earning more than GBP 7,500: the two methods

Once your gross receipts exceed GBP 7,500, the income is no longer automatically exempt, but you do not lose the relief entirely. Instead you choose between two ways of calculating the tax.

Method A -- normal property income

You ignore the Rent a Room Scheme and treat the room as ordinary property income. You pay tax on the rent received minus your allowable expenses (a fair proportion of things like utilities, insurance and repairs that relate to the let). This is the default; HMRC applies it unless you tell them otherwise.

Method B -- tax on the excess only

You elect to be taxed only on the amount above GBP 7,500. You get the exemption but cannot deduct any expenses.

You simply pick whichever produces the smaller taxable figure. Here is a worked comparison for someone receiving GBP 10,000 a year with GBP 1,800 of genuine allowable expenses:

In this example Method B is far better, leaving only GBP 2,500 taxable instead of GBP 8,200. But if your expenses were very high -- say GBP 9,000 against GBP 10,000 of rent -- Method A would give a taxable figure of just GBP 1,000, beating Method B. The right choice depends entirely on your costs, so run both numbers every year.

To see what the resulting tax actually costs at your marginal rate, feed the taxable amount into a calculator alongside your other income.

How the tax is actually charged

Rent a Room income that exceeds the threshold is added to your other taxable income and taxed at your marginal Income Tax rate. For 2026/27 in England, Wales and Northern Ireland that means the basic rate of 20% on income within the basic-rate band, 40% in the higher-rate band, and 45% above GBP 125,140. Scottish taxpayers face the separate Scottish bands, which run from a 19% starter rate up to a 48% top rate.

Because the income stacks on top of your salary or pension, the rate you pay depends on your total. Someone whose other income already fills the basic-rate band will pay 40% on the taxable lodger amount, while someone with little other income may pay 20% or be covered by their Personal Allowance of GBP 12,570. Model the combined position with:

National Insurance generally does not apply. Letting a furnished room is property income, not a trade, so Class 2 and Class 4 contributions are not charged on it. The position changes only if you provide so many services that HMRC treats the activity as running a business, such as a guest house -- which is well beyond an ordinary lodger.

Renting versus owning

You do not have to own your home to use the scheme. Tenants can take in a lodger and claim the GBP 7,500 exemption, provided their own tenancy agreement allows subletting and the room is in their main home. Subletting without permission can breach a lease, so always check first. The threshold and method rules are identical whether you own or rent.

When the scheme is not the best option

The Rent a Room Scheme is usually the simplest and most tax-efficient route for a single lodger, but not always:

• If your allowable expenses are very high relative to the rent, Method A (or normal property rules) can produce a lower taxable figure.
• If letting the room would create losses you want to carry forward, you cannot do that under the exemption -- only under normal property income rules.
• If the let is really a whole-property or holiday business, different regimes apply and the scheme is not available at all.

There is also a wider point: tax-free does not mean cost-free. Lodger income can affect mortgage terms, insurance and means-tested benefits even when no tax is due. Check those angles before you advertise the room.

How to report it

If your gross receipts are GBP 7,500 or less (or GBP 3,750 where shared) and you have no other reason to file, do nothing -- the relief is automatic. Keep a simple record of what you received.

If you exceed the threshold, or you already complete Self Assessment, report the income on the UK property pages of your return. There are specific boxes confirming the Rent a Room position and electing for Method B if you want it. Make the election by the deadline; if you miss it, Method A applies by default for that year.

Bottom line

The Rent a Room Scheme remains one of the most generous everyday reliefs in the UK tax system: GBP 7,500 a year, tax-free, for letting a furnished room in your home. Watch the gross-receipts rule, remember the GBP 3,750 split where income is shared, and -- if you go over the threshold -- compare both methods every year rather than assuming one is always better. For anything beyond a straightforward lodger, check whether normal property or holiday-let rules apply instead, and confirm the knock-on effects on your mortgage and any benefits.