The rent-a-room scheme allows you to rent a spare room in your home and receive rental income of £7,500 tax-free each year without the need to declare it to HMRC. Where more than one person receives the income, each can receive £3,750 tax-free. (The limits are not reduced if the accommodation is let for less than 12 months.)

Eligibility

The rent-a-room scheme can be used by anyone who lets a furnished room in their home to a lodger. The relief also applies to those renting (however, you should check with your landlord whether your lease allows this). The rent-a-room scheme can also be used by those running a guest-house or a bed-and-breakfast establishment and provide services, such as meals and cleaning, as well as accommodation.

The scheme is not available in relation to accommodation which is not the individual’s main home or which is let unfurnished.


Automatic exemption

Where the rental receipts are £7,500 or less (or £3,750 or less where more than one person benefits from the rental income), the exemption is automatic. There is no need to tell HMRC about the rental income.


Using the scheme where rental income exceeds the threshold

The rent-a-room scheme can also be used where the rental receipts exceeds the rent-a-room threshold (£7,500 or £3,750 as appropriate). Where this is a case, the taxable amount is simply the amount by which the rental receipts exceed the rent-a-room threshold.

Where rental receipts are more than the rent-a-room threshold, a tax return must be completed. If the relief is to be claimed, this can be done by ticking the relevant box in the return.


Example 1

Abena lets out her spare room to a lodger for £100 a week, earning her £5,200 a year.

As the receipts are less than £7,500, she takes advantage of the automatic exemption for rent-a-room relief. She does not have to declare the income to HMRC.

Example 2

Paul lets out a room in her home for £10,000 a year. She incurs expenses of £1,000 a year.

If he does not claim rent-a-room relief, she will pay tax on her profit of £9,000. However, by claiming rent-a-room relief, she is only taxed to the extent that her rental income exceeds £7,500. She is therefore able to reduce her taxable profit from £9,000 to £2,500 by claiming the relief.


*This article is for general awareness only and does not constitute legal or professional advice. The law may have changed since this page was first published.