Rent a Room Scheme 2026/27: Earning Up to £7,500 Tax-Free From a Lodger
The Rent a Room scheme lets you earn up to £7,500 a year tax-free from letting out a furnished room in your main home — no expenses to track, no Self Assessment needed below the threshold. Here's how it works and where it doesn't apply.
How the £7,500 Exemption Works
The Rent a Room scheme is an automatic tax exemption (not a relief you have to actively claim below the threshold) for anyone letting furnished accommodation to a lodger within their own main residence. If your gross receipts from the lodger — total money received, not profit after expenses — are £7,500 or less in a tax year, the income is entirely tax-free.
| Gross income from lodger | Tax treatment |
|---|---|
| £7,500 or less | Fully tax-free, automatic, no need to register (if no other Self Assessment reason) |
| Above £7,500 | Choice between rent-a-room method or normal property income method for the excess |
If two or more people (e.g., joint homeowners, or a couple) receive the rental income, the £7,500 allowance is halved to £3,750 each — it is not £7,500 per person.
What Counts Towards the £7,500
The threshold isn't just "rent" in the narrow sense — it captures everything the lodger pays you in connection with their accommodation:
| Included in the £7,500 threshold? |
|---|
| Weekly/monthly rent — Yes |
| Charges for meals provided — Yes |
| Charges for cleaning/laundry — Yes |
| Contribution towards utility bills — Yes |
| A separate, clearly itemised deposit returned in full at the end of the tenancy — Generally not counted as income if genuinely refundable |
A homeowner charging £600/month rent plus £50/month towards bills and occasional meals needs to add all of these together when checking against the £7,500 annual limit — not just the headline rent figure.
Above £7,500: Two Methods to Choose Between
Once gross lodger income exceeds £7,500, you must register for Self Assessment (if not already) and choose how to calculate the taxable amount:
| Method | How it works |
|---|---|
| Rent-a-room method | Deduct the £7,500 allowance from gross income; pay tax on the remainder. No separate expense deductions allowed against this excess. |
| Normal property income method | Deduct actual allowable expenses (proportion of mortgage interest, insurance, repairs, utility bills relating to the let space, wear and tear) from the full rental income; pay tax on the net profit. |
Worked example: £9,500 gross annual income from a lodger, with £1,000 of genuine allowable expenses (proportion of bills, wear and tear on furnishings).
| Method | Calculation | Taxable amount |
|---|---|---|
| Rent-a-room | £9,500 − £7,500 | £2,000 |
| Normal property income | £9,500 − £1,000 | £8,500 |
Here, the rent-a-room method produces a much lower taxable amount (£2,000 vs £8,500) and would normally be the better choice — but this isn't always the case. A homeowner with high genuine expenses (large mortgage interest, significant bills) relative to a modest rental income might find the normal property income method produces a lower taxable figure instead. You can choose the more favourable method each year, based on that year's actual figures.
Where the Scheme Doesn't Apply
| Situation | Rent a Room applies? |
|---|---|
| Furnished room let in your only/main home, while you also live there | Yes |
| Letting a room in a second home you don't live in | No |
| Letting a whole separate flat/annex, even if attached to your home, where the arrangement isn't genuinely "living together" | Generally no — depends on specific facts |
| Letting an unfurnished room | No — the scheme requires furnished accommodation |
| Letting via Airbnb/short-term letting where you're present throughout | Can qualify if genuinely your main residence and it's a furnished room arrangement — check specific guidance, as short-term letting income sometimes sits in a grey area |
| A buy-to-let property let entirely to tenants, landlord doesn't live there | No — taxed under normal property income rules |
If you're unsure whether a specific arrangement qualifies (particularly short-term or platform-based lettings within your home), HMRC's guidance on Rent a Room and "lodger" versus "tenant" status is worth checking directly, as the precise facts of the living arrangement matter.
Practical Record-Keeping
Even where income sits comfortably under £7,500 and no formal declaration is needed, it's sensible to keep a simple record of:
- Dates the lodger arrangement started/ended
- Monthly or weekly amounts received
- Any additional charges (bills, meals) collected
This protects you if HMRC ever queries the position, and makes the calculation straightforward in a year where income unexpectedly approaches or exceeds the £7,500 threshold — for example, if you take on a lodger for the first time partway through a tax year and need to confirm the pro-rated position, or take on a second lodger and need to check the combined total against the limit.
Frequently asked questions
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