What is the Rent a Room Scheme (UK)?

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How it works

Under the scheme, if a host's gross annual income from letting a furnished room is below the tax-free threshold, the exemption is automatic, and they do not need to declare this income to HMRC. If the gross income exceeds the threshold, the host has two options.

They can either remain in the scheme and pay tax only on the amount exceeding the £7,500 allowance, without deducting any expenses. Alternatively, they can opt out of the scheme for that tax year and calculate their profit in the standard way by deducting allowable expenses from their total rental income, then pay tax on the net profit.

To opt out, the host must notify HMRC via their Self Assessment tax return by the deadline.

Why it matters

For UK hosts who live in the property they rent out, the Rent a Room Scheme offers a significant tax advantage and simplifies tax reporting. It encourages the use of spare housing capacity and can make small-scale or occasional hosting more financially rewarding.

Understanding this scheme is crucial for compliance and for making an informed decision about whether to use the tax-free allowance or calculate profit using the standard expense method, thereby maximizing financial benefits.

Examples

• A homeowner in London rents their spare bedroom on Airbnb for weekends throughout the year. Their total annual income from these rentals is £6,000. Under the Rent a Room Scheme, this income is completely tax-free and does not need to be declared on a tax return.
• A couple jointly owns a house in Manchester and rents a room to a long-term lodger. Their combined gross rental income is £8,000 for the tax year. They can each claim a £3,750 allowance, totaling the £7,500 scheme threshold. Consequently, they only need to declare and pay tax on the remaining £500 of income.
• A tenant living in a two-bedroom flat in Bristol, who has their landlord's permission to sublet, rents out their spare room to guests. The total rental income for the year is £9,000. They can choose to use the scheme and pay tax on £1,500 (£9,000 - £7,500), or they can opt out and calculate their profit by deducting their allowable expenses (like a portion of their own rent and utility bills) from the £9,000 income.
• A live-in landlord in Edinburgh earns £10,000 from renting a room. Their actual allowable expenses are only £1,000. It is more beneficial for them to stay in the Rent a Room scheme and pay tax on £2,500 (£10,000 - £7,500) rather than opting out and paying tax on £9,000 (£10,000 - £1,000).