Rent a room scheme and tax

The Rent a Room scheme allows homeowners to earn up to £7,500 each year tax-free by renting out a room to lodgers. In order to qualify, the room must be in their main home and offered on a fully furnished basis.

Certain homeowners will need to obtain permission from their mortgage provider (eg if there is a relevant stipulation in the contract regarding lodgers). People renting a home may be able to sub-let a spare room under the Rent a Room scheme but they will generally need permission from their landlord.

Individuals do not need to pay tax on the first £7,500 which is earned under the Rent a Room scheme each year. If someone else received income from letting the property (eg a partner or joint owner of the property), this is reduced to a £3,750 tax-free allowance per person.

The tax-free threshold covers all expenses charged to the lodger. This means that if they are charged separately for cleaning, utility bills or laundry, these fees must also be counted as part of the overall amount.

Income tax must be paid on any amount over the tax-free threshold in the normal way. However, it should be noted that expenses related to the lodging cannot be offset when taking advantage of the scheme.

There is no requirement to opt into the Rent a Room scheme - and consequently no need to claim the tax-free allowance formally. Records should be kept but, as long as any income earned falls within the tax-free threshold, there is no obligation to report this to HMRC.

People taking advantage of the Rent a Room scheme who are not eligible for self-assessment (ie who are taxed at source by their employer via PAYE and who do not need to fill out a tax return for other reasons) will not need to complete a tax return unless they receive in excess of the tax-free threshold. If they receive above the threshold, a tax return will be required.

There is no need to inform HMRC unless income earned under the Rent a Room scheme exceeds the threshold. If the income earned does exceed the threshold contact HMRC and ask for a tax return form.

People who do not wish to claim tax relief will need to pay tax in the normal way on any rent earned from lodgers and should indicate this in the relevant section of their tax return.

Anyone who decides to opt-out of Rent a Room relief - or switch back - should notify HMRC by filling out the relevant section in their tax return.

If you are renting out rooms in Scotland, you may need to register as a landlord. However, this will not be necessary if you are using the home as your only and main residence and are renting to no more than two lodgers. If you are renting to more than two lodgers under the Rent a Room Scheme, you will need to register as a landlord.

For more information, see the Government’s guidance. For more information on renting a room to a lodger, read Taking in a lodger.