How does the Rent a Room scheme work?

Rent a Room lets you earn up to £7,500 a year tax-free in 2026-27 from furnished rooms in your own home, or £3,750 if someone else also receives income from letting in the same home.

The limit is set in law at £7,500 (section 789 of the Income Tax (Trading and Other Income) Act 2005) and HMRC's Property Income Manual gives the same figure. It is tested on gross receipts, before any expenses, and it applies whether you own your home or rent it. The rules below come from GOV.UK and HMRC's manuals, checked on 16 October 2026.

Who can use it

The scheme is for individuals who let furnished accommodation in their only or main home. That covers a lodger in the spare room, and it can also cover a bed and breakfast or guest house run from the home you live in. It does not apply to companies or partnerships.

You cannot use it when the accommodation is:

• not part of your main home at the time you let it, so a whole house let while you live elsewhere does not qualify;
• your UK home let while you live abroad;
• unfurnished;
• used as an office or for business, although a lodger who studies or works at home in the evenings or at weekends is fine;
• in a home converted into separate flats.

What counts towards the limit

Your gross receipts for the tax year (6 April to 5 April) include the rent, plus anything the lodger pays for meals, cleaning, laundry, heating or other goods and services connected with the room, and any balancing charges. Rent from other properties does not count. If you move home during the year and let a room in both homes, you add the two together, and you still get only one limit.

The limit halves to £3,750 if someone else receives income from letting accommodation in the same home in the same year, such as a joint owner. The limit does not shrink if you let for less than 12 months.

Below the limit, above the limit

Method B has to be chosen. HMRC says there is no special form: filling in your return on that basis counts as choosing it. Once chosen, it carries on each year until you switch back or your receipts fall below the limit. Neither the exemption nor Method B can create a loss.

Worked examples

All figures are for 2026-27 and assume a basic-rate taxpayer outside Scotland, paying 20%.

Under the limit. Priya lets her box room for £135 a week, bills included. Over 52 weeks that is £7,020, under £7,500, so it is tax-free and she has nothing to report for it.

Over the limit. Tom's lodger pays £175 a week including meals, which is £9,100 for the year. Tom's costs for the room, such as a share of bills and insurance, come to £1,400.

Method B saves Tom £1,220, so he chooses it on his return. Method A would only win if his costs were more than £7,500. HMRC's own example is a lodger paying £10,600 with £9,000 of expenses, where Method A gives £1,600 and Method B £3,100.

Shared home. If Tom co-owned the house and the £9,100 was split equally with his partner, each would have £4,550 against a £3,750 limit. Under Method B each would pay tax on £800, or £160 at 20%.

What this means for you

For most people with one lodger paying a modest rent, Rent a Room means no tax and no paperwork. Keep a simple record of what the lodger pays, including any contributions to bills and food, so you know which side of the limit you are on.

Once you go over, compare the two methods every year: low costs usually favour Method B, high costs favour Method A. Taxable lodger income is normally property income, so from 2027-28 it is taxed at the new property income rates, 22%, 42% and 47% in England and Northern Ireland. HMRC's technical note says the Rent a Room scheme itself is unchanged.

Capital Gains Tax is a separate question when you sell. GOV.UK says having a lodger who shares your living space does not count as letting out your home for Private Residence Relief.

Steps to use the scheme

1. Check the room is furnished and in your only or main home, and that you are letting it as living space.
2. Add up everything the lodger paid from 6 April to 5 April, including meals, laundry and bills.
3. Check whether anyone else received letting income from the same home in the year. If so, your limit is £3,750.
4. If you are under the limit and made no loss, you need do nothing.
5. If you are over it, register for Self Assessment if you have not already, work out Method A and Method B, and use the lower figure on the UK property pages.
6. Make any choice to opt out, or to start or stop Method B, within one year of 31 January after the tax year. For 2026-27 that is by 31 January 2029.

If you also let a separate property, the free MTD check shows whether Making Tax Digital applies to you, and the landlord section has more guides on letting.