How to use the Rent a Room Scheme
The Rent a Room Scheme lets you earn up £7,500 per year tax-free from letting out a part of your own home.
You don’t need to submit a self assessment tax return if your rental income is under this limit.
Am I eligible?
- 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?
- each gets half of the Rent a Room allowance: £3,750
- but that’s ok: each of you pays tax on half the income from rent anyway.
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.
You don’t need to do anything.
What if I earn more than the limit?
HMRC lets you choose between:
- Method A: you pay tax on the actual profit – rent minus expenses and capital allowances
- Method B: you pay tax on what you earn over the Rent-a-Room limit.
In both cases you’ll need to submit a self assessment tax return.
What you should know:
- HMRC will automatically use Method A
- if you want to use Method B, you need to tell HMRC
- you can switch from year to year
- if you use Method B, you cannot deduct any expenses or capital allowances
- if you use Method B, it automatically stops if your rental income drops below the Rent-a-Room limit.
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:
- this year tell HMRC that you want to pay tax using Method A
- next year 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 2 people:
- extra safety requirements
- extra standards
- you’ll often need a licence.