Rent a Room Scheme: the £7,500 tax-free limit
How the Rent a Room Scheme works, what happens if you earn more than the limit and how to choose between the two ways of working out your profit.
What is the Rent a Room Scheme?
GOV.UK says the scheme lets you earn up to a threshold of £7,500 per year tax-free from letting furnished accommodation in your home. The threshold is halved to £3,750 if you share the income with someone else.
GOV.UK lists the eligibility as being a resident landlord, whether or not you own your home. It also covers people who run a bed and breakfast or guest house. You cannot use the scheme for homes converted into separate flats.
If you earn less than the limit
GOV.UK says the exemption is automatic and you do not need to do anything.
If you earn more than the limit
GOV.UK says you must complete a tax return if you earn more than your threshold. There are two ways to work out your profit:
- Opt into the scheme and claim the tax-free allowance on your tax return.
- Opt out, and record your income and expenses on the property pages of your tax return.
A worked example
Imagine £9,000 of rent for the year, with £2,000 of expenses such as repairs and utilities, and the income is not shared.
- Using the scheme: the £7,500 threshold is taken off the £9,000 of receipts, leaving £1,500 to tax. Expenses are not deducted.
- Opting out: the profit is £9,000 − £2,000 = £7,000.
Here the scheme gives the lower figure. Opting out would only give a lower figure if your expenses were more than £7,500, so it is worth working out both for your own numbers.
Check your own figures
The SavingTax app has a guide on Rent a Room Relief and one on the property allowance, which works differently.
Sources
This page is general information, not financial, tax or legal advice. The example is simplified. Your own position depends on your circumstances. For advice, speak to a qualified professional.