The Rent a Room Scheme

https://www.gov.uk/rent-room-in-your-home/the-rent-a-room-scheme

Rent a Room Scheme – A Tax-Free Way to Earn Extra Income

Are you a homeowner or tenant looking to earn extra income by renting out a spare room? The Rent a Room Scheme allows you to earn up to £7,500 per year tax-free, making it a great opportunity for those with unused space. Discover how this government scheme can benefit you and ensure you're making the most of your rental income.

How Does the Rent a Room Scheme Work?

The UK Rent a Room Scheme provides tax relief to those renting out furnished accommodation in their main residence. You can earn up to £7,500 per year without paying tax. If the income is shared with another person (e.g., a spouse or co-owner), the tax-free threshold is split to £3,750 each.

Who Can Use the Scheme?

You can take advantage of the Rent a Room Scheme if:

You are a homeowner or a tenant (with your landlord’s permission).
You rent out a furnished room in your main home.
The rental income comes from letting space within your home (not a separate property).

What Counts Towards the £7,500 Allowance?

Your tax-free earnings under this scheme include:

Rental payments from your lodger.
Utility bills (if included in the rent).
Additional services (e.g., meals or cleaning, if provided).

Should You Opt Out of the Scheme?

If your rental income exceeds £7,500 per year, you have two choices:

Stay in the scheme – Pay tax only on the amount exceeding £7,500.
Opt out and declare rental income – Deduct allowable expenses and report profits under standard property income rules.

How to Report Rent a Room Income

If your total rental income is below £7,500, you don’t need to do anything – it is automatically tax-free. However, if you earn more than this amount, you must declare it on a Self Assessment tax return and pay tax on the excess.

Key Considerations Before Renting Out a Room

The scheme applies only to furnished rooms in your main home.
Self-contained flats or properties do not qualify.
Tenants should check their tenancy agreement before subletting.
Renting out a room may impact your home insurance or mortgage terms.
If you claim benefits, rental income could affect your entitlement.

Need Expert Tax Advice on the Rent a Room Scheme?

Unsure if the Rent a Room Scheme is right for you? Need help with Self Assessment or property tax planning? Hiclass Accounting provides expert advice to ensure you maximise your tax-free rental income while staying compliant.