Rent a Room Scheme 2026/27: A Worked Example for a £700-a-Month Lodger
The Rent a Room Scheme lets you earn up to £7,500 tax-free in 2026/27 from letting a furnished room in your home. Full worked example for a £700-a-month lodger, plus what happens above the threshold.
What the Rent a Room Scheme covers
The Rent a Room Scheme lets homeowners and tenants (with permission from their landlord or mortgage lender) let out a furnished room, or rooms, in their main home and receive up to £7,500 a year completely tax-free — no expenses to track, no Self Assessment property pages to complete if that is your only source of rental income and you're not already filing a return for other reasons.
Worked example: a £700-a-month lodger
A homeowner takes in a lodger paying £700 a month, inclusive of a contribution towards bills.
- Annual gross receipts: £700 × 12 = £8,400
- Rent a Room threshold: £7,500
- Amount over the threshold: £8,400 − £7,500 = £900
Because the income exceeds £7,500, the homeowner has a choice:
Option A — Rent a Room method (no expenses deducted): tax is charged only on the excess, £900, at the homeowner's marginal rate. For a basic-rate (20%) taxpayer, that is £900 × 20% = £180 tax for the year.
Option B — normal property income rules: the full £8,400 is treated as rental income, with actual allowable expenses (a share of bills, wear and tear, insurance, etc.) deducted before tax. If genuine allowable expenses for the letting came to, say, £1,200, taxable profit would be £8,400 − £1,200 = £7,200, taxed at 20% = £1,440 — a worse outcome here than Option A.
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Open Self-Employed Tax calculatorIn this example, the Rent a Room method (Option A) is clearly better because it only taxes the £900 excess, with no need to itemise costs at all — this is typically the case unless your actual letting-related expenses are unusually high relative to the rent charged.
Worked example: income under the threshold
A homeowner lets a room for £550 a month, including a contribution towards council tax and utilities.
- Annual gross receipts: £550 × 12 = £6,600
- Since £6,600 is below the £7,500 threshold, the entire amount is tax-free and, in most cases, doesn't need to be reported to HMRC at all if the homeowner has no other reason to file a Self Assessment return.
Joint owners: the allowance halves
If a property is owned jointly — most commonly a couple who both have a legal interest in the home — and both are entitled to the rental income, the £7,500 allowance is split to £3,750 each, not £7,500 each. This matters for couples who might assume the full allowance applies twice.
Rent a Room vs the £1,000 property allowance
Separately, there is a general £1,000 property allowance that can apply to small amounts of property income of any kind. You cannot claim both Rent a Room relief and the property allowance on the same income — but because the Rent a Room threshold (£7,500) is so much larger than the property allowance (£1,000), Rent a Room relief is almost always the better choice for anyone letting a furnished room in their own home.
Bottom line
For most homeowners taking in a single lodger, the Rent a Room Scheme's £7,500 tax-free threshold comfortably covers typical rent levels across most of the UK outside London, and even where income exceeds it, the "tax only the excess, no expenses needed" method is usually simpler and cheaper than tracking actual costs under normal property income rules.
Sources
- GOV.UK: Rent a Room Scheme
- GOV.UK: HS223 Rent a Room Scheme helpsheet
Frequently asked questions
How much can I earn tax-free under the Rent a Room Scheme in 2026/27?
You can earn up to £7,500 a year tax-free from letting furnished accommodation in your main home under the Rent a Room Scheme in 2026/27. This threshold has been frozen at £7,500 since April 2016.
What happens if two people jointly own the home and both let a room?
The £7,500 allowance is halved to £3,750 each if two or more people (such as a couple who jointly own the property) are entitled to the rental income, rather than each getting the full £7,500.
Does the £7,500 include money for bills and meals?
Yes. The Rent a Room threshold covers all gross receipts from the letting, including any amount charged for meals, cleaning, laundry or utility bills provided as part of the arrangement, not just the base rent.
What happens if my rental income goes above £7,500?
You have a choice: either pay tax on the amount above £7,500 with no deduction for expenses (the 'Rent a Room' method), or opt out of the scheme and instead be taxed on your actual rental profit (income minus allowable expenses) under the normal property income rules — whichever method gives the better result for your circumstances.
Can I use the Rent a Room Scheme and the £1,000 property allowance on the same income?
No. You cannot claim both the Rent a Room relief and the separate £1,000 property allowance against the same rental income — you choose whichever is more beneficial, and for most people letting a furnished room in their main home, the much larger £7,500 Rent a Room threshold is the better option.
Do I need to tell HMRC if I earn under £7,500 from a lodger?
If your gross rental income is £7,500 or less and you don't already need to file a Self Assessment return for other reasons, the relief usually applies automatically and you don't need to inform HMRC. If you already complete a Self Assessment return, or your income exceeds the threshold, you generally do need to report it.
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