Rent a Room Relief lets you earn up to £7,500 a year tax free from letting furnished accommodation in your only or main home. If your gross receipts stay at or below that figure the relief is automatic and you have nothing to report. The threshold halves to £3,750 where someone else also receives income from the same property. Go over the limit and you choose how you are taxed: on the excess, or on your actual profit in the normal way.
Taking in a lodger or renting out a spare room is one of the simplest ways to bring in extra income, and the tax rules are unusually generous. This guide explains who qualifies, how the £7,500 allowance works, when you need to tell HMRC anything, and how to pick the method that leaves you paying the least tax.
What is Rent a Room Relief?
Rent a Room Relief is an HMRC scheme that lets you receive up to £7,500 a year tax free from letting furnished accommodation in the property you live in as your only or main home. The room must be furnished and part of the home you occupy. The relief covers the rent plus any charges you make for related services such as meals, cleaning or laundry, all counted together as your gross receipts.
The scheme is deliberately broad. It applies whether you take in a single lodger, rent to a few sharers, or run a small operation offering rooms with breakfast. What matters is that the accommodation sits inside your own home and is furnished.
How much can you earn tax free?
The allowance is £7,500 for the 2025/26 and 2026/27 tax years. This is a gross figure, measured against everything you receive before any costs, not against your profit.
The threshold is halved to £3,750 where someone else also receives income from letting accommodation in the same property, such as a couple or joint owners who both take a share of the rent. In that case you each get £3,750 rather than £7,500 apiece, and splitting the income does not restore the higher figure.
Do you have to report anything to HMRC?
If your gross receipts for the year are at or below the threshold that applies to you, the relief is automatic. You are exempt from tax on that income and there is nothing to report. You do not need to file a tax return purely because of Rent a Room income within the limit, and you do not claim the relief anywhere; it simply applies.
If your receipts go over the threshold, you do need to declare the income, which usually means completing a Self Assessment tax return. Missing the filing or payment date brings automatic charges, so read our guide to Self Assessment deadlines and penalties before the year end if you expect to exceed the allowance.
Method A or method B: which taxes you less?
Once your gross receipts pass the threshold, you choose how the income is taxed.
Method A: your actual profit
Under method A you are taxed in the normal way on your actual profit: your total receipts less allowable costs and any capital allowances. This is the default, and it suits people with high running costs, because those costs reduce the profit you pay tax on. If you are weighing up what you can deduct, our guide to allowable business expenses is a useful starting point.
Method B: tax on the excess
Under method B you pay tax on your gross receipts above the Rent a Room limit, with no deduction for expenses. So if you receive £10,000 and the limit is £7,500, you are taxed on £2,500. This suits people whose costs are low, because it hands you the whole allowance whatever you spent.
You can compare the two each year and pick whichever leaves you better off. If you want method B, you tell HMRC within the time limit; otherwise method A applies automatically. The better choice can change from year to year as your rent and costs move, so it is worth running both numbers first.
What counts, and what does not?
The relief covers letting a furnished room to a lodger, and it can extend to some bed and breakfast or guest house income where you provide the accommodation and services from the home you live in. If you run that kind of small operation from where you live, the receipts can fall within the scheme.
It does not cover everything, though. The relief does not apply to a room let as an office or for any business use, or to space let purely for storage. It also does not apply to a home you let out while you live somewhere else, including a UK property let while you live abroad, because it is no longer part of the home you occupy. Unfurnished lettings are outside the scheme too.
If your situation does not fit the scheme, or you let property that is not your main home, the separate property income allowance may be worth looking at instead. And if you later sell a home in which you have let rooms, check how Capital Gains Tax rates apply, since letting part of your main home can affect the relief you get on a sale.
A worked example
Say you take in a lodger and receive £9,000 over the year as the only person receiving income from the property. You are £1,500 over the £7,500 limit, so the income has to be declared. Under method B you would be taxed on £1,500. Under method A, if your allowable costs came to £2,000, your taxable profit would be £7,000. Here method B wins, but change the numbers and the answer can flip, which is why it pays to check both.
Getting it right
The boundaries matter: the furnished condition, the main home requirement, the halved threshold for couples, and the yearly choice between methods. Keeping simple records of what you receive and spend makes the annual decision easy and protects you if HMRC asks questions. For more, see our full accountancy and tax guide.
If HMRC opens an enquiry, professional fees can mount quickly even when your figures are correct. Solar Protect tax investigation insurance covers up to £100,000 of your accountant’s fees with no excess, so you can respond properly without worrying about the bill. Get a quote.
Reviewed by Matthew Bartlett, Director, Solar Protect. This guide is general information, not personalised tax or financial advice. Figures are correct for the 2025/26 and 2026/27 UK tax years at the time of writing.