Rent a Room Scheme explained

The £7,500 tax-free limit and what you need to know before taking a lodger.

The short answer

If you let out a furnished room in your own home, the Rent a Room Scheme lets you earn up to £7,500 a year tax-free from it. The limit is £3,750 each if you share the income with someone else, such as a partner or joint owner. It covers lodgers in the home where you live, not a separate property.

How it works

The room must be in your only or main home.
Rent and other receipts from the lodger, such as for meals or bills, count towards the limit.
If your total receipts are under the limit, you usually do not have to report them or pay tax on them.
If your receipts are over the limit, you must tell HMRC, usually through Self Assessment. You can then choose either to be taxed on the amount above the limit, or to use the normal method of rental income minus expenses.

Which method is better?

If your costs are small, taxing only the amount above £7,500 is often simpler and cheaper.
If your costs are high, such as repairs, extra utilities or insurance for the room, the normal method can leave you with less taxable profit.
You can switch method from year to year, so check each year.

Things to check

Letting a whole property, or a separate flat, is not covered. See Capital Gains Tax on a second home for related rules on property.
Rent can affect means-tested benefits, so tell the benefit office if you claim any. See benefits you might be missing.
Check your mortgage terms and your buildings insurance before taking a lodger. Some lenders and insurers need to be told.
You can ask for references and should keep a written agreement and records of what you receive.
Short-term lets through holiday apps can be treated differently, so check with HMRC if you do this.

Where to learn more

This guide is for information only and is not tax, benefits or financial advice. Rules and amounts can change, so check the official pages before you rely on them.