Comparison · Property · 2026/27
Rent a Room Scheme vs Furnished Holiday Let UK 2026/27
The Rent a Room Scheme gives up to GBP 7,500 tax-free for letting a room in your own home. Furnished holiday letting lost its favourable tax status from April 2025. This 2026/27 guide compares what each actually offers now.
Key facts -- 2026/27
- • Rent a Room allowance: GBP 7,500/year tax-free
- • Shared allowance: GBP 3,750 each if split
- • FHL favourable tax status: abolished from 6 April 2025
- • Former FHL mortgage interest: now 20% tax credit only (Section 24)
- • Former FHL CGT reliefs (BADR etc.): no longer available
- • Rent a Room scope: your own main residence only
What Each Option Actually Offers Now
The Rent a Room Scheme remains a genuinely valuable, simple tax-free allowance for anyone letting a room within their own main home -- nothing has changed about its structure or the GBP 7,500 threshold.
Furnished holiday letting, by contrast, lost its distinct advantageous tax treatment entirely from April 2025 -- it is now simply taxed as standard rental income, subject to the same Section 24 mortgage interest restriction and lacking the CGT reliefs that previously made it attractive as a semi-business property investment.
Worked Example: GBP 8,000 Annual Income
| Route | Tax treatment |
|---|---|
| Lodger under Rent a Room | GBP 500 taxable (excess over GBP 7,500), or opt to use expenses |
| Former FHL property (post-April 2025) | Full GBP 8,000 taxable as standard rental income, expenses deductible except most mortgage interest |
Illustrative only -- consult HMRC guidance for your specific situation. Use the income tax calculator to estimate tax on rental income.
Side-by-Side Comparison
| Factor | Rent a Room Scheme | Furnished Holiday Let (post-2025) |
|---|---|---|
| Tax-free allowance | GBP 7,500/year | None |
| Mortgage interest relief | N/A (main residence) | 20% credit only |
| CGT reliefs (BADR etc.) | N/A | No longer available |
| Applies to | Room in own home | Separate property |
| Self Assessment | Not required if within allowance | Required |
Frequently Asked Questions
Frequently Asked Questions
What is the Rent a Room Scheme?
Earn up to GBP 7,500/year tax-free from letting furnished accommodation in your own main home, without needing to register for Self Assessment for that income alone.
What happened to FHL tax status?
Abolished from 6 April 2025 -- FHLs are now taxed like standard lettings, losing full mortgage interest deduction, CGT reliefs like BADR, and pension-relevant-earnings treatment.
Can I use Rent a Room for a separate holiday property?
No -- it only applies to furnished accommodation within your own main residence where you continue to live alongside the tenant/guest.
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Is FHL still worth it after 2025?
It can still be viable, but without the previous tax advantages -- profits are now taxed like any other rental income, so it depends on yield and demand, not tax treatment.
What if Rent a Room income exceeds GBP 7,500?
Choose between paying tax on the excess with no expense deduction, or opting out to calculate normal profit (income minus expenses) if that gives a lower bill.
Do both require Self Assessment registration?
Rent a Room income within GBP 7,500 usually does not require registration for that income alone; former FHL income must be declared as standard rental income regardless of amount.
Can former FHL owners still deduct furniture costs?
Generally no direct deduction for furniture itself, though replacement of domestic items relief covers like-for-like replacements -- less generous than previous FHL capital allowances.
Does Rent a Room cover bills and services?
Yes -- the GBP 7,500 threshold covers total gross income including meals, cleaning and laundry, not just base rent.
Can tenants use Rent a Room if they rent rather than own?
Yes, in principle, if the tenancy permits subletting and landlord consent is obtained -- check your tenancy agreement first.
Does National Insurance apply?
Generally no Class 2/4 NI on rental income under either scheme, since it is treated as property income, not trading income, for most individual landlords.
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Disclaimer: This comparison is general educational information based on 2026/27 UK tax rules. It is not financial or tax advice. Consult a tax adviser and refer to gov.uk for current rules.