The Rent a Room Scheme explained

What the Rent a Room Scheme is

The Rent a Room Scheme is an income tax relief that makes the first £7,500 a year you receive from letting furnished accommodation in your home tax free. It is designed for resident landlords who take in a lodger, and it also covers a bed and breakfast or guest house run from the home you live in. The same limit applies across the UK, including Scotland.

The limit is measured against your gross receipts, not your profit. Receipts are the rent before any expenses, plus anything you are paid for meals, goods and services such as cleaning or laundry. If your lodger pays rent and a separate charge for meals, both count towards the limit.

You can use the scheme whether you own your home or rent it.

The shared limit

Your limit is halved to £3,750 if someone else receives income from letting accommodation in the same property. This usually happens when you own your home jointly with a partner and you both receive part of the lodger's rent.

For example, you earn £30,000 from a job, you receive £5,000 from a lodger with no expenses, and your joint owner also receives letting income from the same home. Your receipts are over your £3,750 limit. Using method B, explained below, you pay tax on the £1,250 above the limit, which comes to £250 at the basic rate of 20% in England. With the full £7,500 limit, the same £5,000 would be tax free.

Who qualifies

You qualify if you let furnished accommodation in your only or main home. That covers a furnished room let to a lodger, and a bed and breakfast or guest house business run from the home you live in.

What does not qualify

The scheme does not apply to accommodation that:

• is not part of your main home when you let it, such as a second home or a buy-to-let property
• is not furnished
• is used as an office or for any kind of business
• you let while you live abroad

It also does not apply to a home that has been converted into separate flats. Income from any of these lettings is taxed under the normal rules for a property business, set out in the guide to tax on rental income.

If your receipts are under the limit

If your receipts for the tax year are under the limit, the relief is automatic and you pay no tax on them. GOV.UK confirms you do not need to do anything to claim it.

Say you earn £30,000 from a job and receive £7,000 a year from a lodger, with £1,500 of costs. The rent is under the £7,500 limit, so it is tax free. If you left the scheme and claimed your costs as expenses instead, the rent would add tax.

Receipts from the lodger

£7,000

Profit if you claimed expenses instead

£5,500

Tax if you claimed expenses instead

£1,100

Tax with Rent a Room relief

£0

Opting out when you are under the limit

You can choose not to use the scheme, for example if your costs are more than your receipts and you want to claim a loss. To opt out, you must tell HMRC within one year of 31 January following the end of the tax year.

If your receipts are over the limit

If your receipts are over the limit, you must complete a tax return and the income is taxed in one of two ways. HMRC uses method A unless you tell it you want method B.

• Under method A, you pay tax on your actual profit: your receipts less your expenses and capital allowances.
• Under method B, you pay tax on your receipts above the limit, and you cannot deduct any expenses or capital allowances.

Method A gives the lower taxable amount when your expenses and capital allowances come to more than your limit of £7,500, or £3,750 if it is shared. Otherwise method B does.

HMRC's example

HMRC's helpsheet HS223 describes a landlord with receipts of £10,600 and expenses of £9,000. Under method A, the taxable profit is £1,600. Under method B, the taxable amount is £3,100, the receipts above the limit. Method A is better because the expenses are larger than the limit.

Here is what that means in tax for someone who also earns £30,000 from a job in England, so the whole amount falls in the basic rate band.

Receipts

£10,600

Method A: taxable profit

£1,600

Method A: tax

£320

Method B: taxable amount

£3,100

Method B: tax

£620

Tax saved by using method A

£300

The deadline for choosing method B

To use method B, you must tell HMRC within one year of 31 January following the end of the tax year. For the 2025/26 tax year, which ended on 5 April 2026, the deadline is 31 January 2028.

Once you choose method B, it carries on in later years until you tell HMRC you want to go back to method A. It stops automatically in any year your receipts fall below the limit, when the relief applies in full again.

Mortgage interest and the property allowance

Rent a Room relief replaces your costs rather than adding to them. If you claim the relief, you cannot deduct mortgage interest, and the £1,000 property allowance cannot be used on Rent a Room income at all.

If your costs are high, work out method A as well before you decide. Method A taxes your letting as a normal property business, and the comparison of the property allowance and claiming expenses explains how costs are treated there.