Rent a Room Relief: How to Earn Tax-Free Rental Income in the UK

Are you a UK homeowner or tenant looking to earn extra income from letting out a room? The Rent a Room Scheme could be the perfect solution, offering up to £7,500 in tax-free income each year. In this guide, we’ll explain who qualifies, how it works, and how to claim Rent a Room Relief.

What Is Rent a Room Relief?

Rent a Room Relief is a government scheme that allows individuals to earn up to £7,500 per tax year tax-free by letting out furnished accommodation in their main home. If you share the income with someone else (e.g. a spouse or joint owner), the threshold is split, meaning each person can claim up to £3,750 tax-free.

If your income stays below the threshold, you don’t need to inform HMRC or complete a tax return. It’s automatic.

Who Can Use the Rent a Room Scheme?

You can use the scheme if you:

Let a furnished room in your main UK home
Are a resident landlord (you live in the property yourself)
Run a bed and breakfast or guesthouse in your home

You can claim the relief even if you rent your home, as long as your lease allows subletting.

You cannot use the scheme if:

The accommodation is not part of your main home
The room is unfurnished
You let the space for business purposes only
You live abroad and rent out your UK home while away

(Source: GOV.UK - Rent a Room Scheme)

How Much Can You Earn Tax-Free?

You can earn up to:

£7,500 per year if you’re the sole recipient of the income
£3,750 per person if you share the income

This includes rent, and any additional payments from your lodger for services like:

Meals
Cleaning
Laundry
Utilities

If your total income is below the threshold, you don’t need to do anything, the tax exemption applies automatically.

What If You Earn More Than the Threshold?

If your income exceeds £7,500, you must complete a Self Assessment tax return. You’ll then have two options:

Option A:

Pay tax on your actual profit (total income minus allowable expenses).

Option B:

Choose Rent a Room Relief and pay tax only on the income above £7,500, with no expenses deducted.

Whichever method gives you the lowest tax bill can be used, and you can switch methods each year by notifying HMRC.

Shared Occupancy Requirement

To qualify, you must live in the property while renting out the room. The lodger must occupy part of the home at the same time as you, this is called the “shared occupancy test.”

Other Considerations for Landlords

Council Tax: You remain liable, but may include a portion in the rent
Utility Bills: You can charge a fair share, but only up to the amount paid
Deposits: You’re not legally required to use a deposit protection scheme for lodgers, but clear agreements are advised

How to Opt In to Rent a Room Relief

If your income is over £7,500, you’ll need to complete a Self Assessment return and tick the Rent a Room box to claim relief. If you don’t opt in, you must report your income and expenses under the standard property income rules.

For full details, visit:
👉 GOV.UK - The Rent a Room Scheme

Need Help With Tax Returns or Relief Claims?

If you're unsure whether you're eligible or how to make the most of your rental income, professional tax advice can help you stay compliant and keep more of what you earn.