How to use the Rent a Room Scheme

The Rent a Room Scheme lets you earn up to £7,500 per year tax-free from letting out a part of your own home. This is also known as the rent a room relief as it’s a great way to become tax efficient.

Am I eligible?

Yes, if:

• You’re a “resident landlord” – this means that you also live there (doesn’t matter if you own it or not)
• The room is furnished
• Or you run a bed and breakfast or a guest house

What if I share a jointly owned property with my spouse?

Simple:

• Each gets half of the Rent a Room allowance – this would be £3,750 each
• Each of you pays tax on half the income from rent

What if I rent out a room through Airbnb?

Yes – as long as you live there (at least most of the time), then you can use this allowance for Airbnb as well.

What if my rental income is less than the Rent-a-Room limit?

In this case that income it’s tax-free – automatically.

So, you won’t need to do anything. You only have to submit a tax return if you go over your £7,500 tax-free allowance.

What if I earn more than the limit?

If your gross receipts are more than 7,500, you have the option to either:

• Pay tax on the actual profit – rent minus expenses and capital allowances
• Pay tax on what you earn over the Rent a Room limit

In both cases, you’ll need to complete a tax return. 

You can also choose to opt out of the scheme on your tax return by simply recording your income and any associated expenses on the property pages of your tax return.

The deadline to tell HMRC you want to opt out is 31st January (after the end of the tax year.)

🚨 Other things you should know about tax and the Rent a Room scheme:

• HMRC will automatically base tax on the actual profit unless you tell them otherwise
• You can switch from year to year
• If you pay tax on what you earn over the limit, you won’t be able to claim expenses or capital allowances
• If your rental income drops below the limit, it will automatically be stopped 

What if I made a loss this year?

You normally can’t claim a loss if you use the Rent a Room scheme.

However, there is a workaround (don’t tell HMRC we told you🤫):

• If you chose to pay tax on the actual profit in the first year
• Next year you can switch to the Rent a Room scheme
• Then you can use the loss from this year to reduce your tax on what you earn over the £7,500 threshold

What if I have more tenants?

Your property may be considered a House in Multiple Occupation (HMO) if you let rooms to more than two people. HMOs require:

• Licensing
• Extra safety requirements
• Extra standards

⚠️ Running an unlicensed HMO is illegal and can result in hefty fines from your local council. ⚠️