Rent-a-Room Relief is a UK tax scheme that allows both homeowners and tenants to earn up to £7,500 per year completely tax-free by renting out part of their home. If you’re living with a partner, the threshold is halved to £3,750.
The scheme has proven a great way for individuals to earn extra income without paying taxes – but what else should we know about Rent-a-Room Relief? To learn more about Rent-a-Room Relief and how it works, continue reading.
Eligibility for Claiming Rent-a-Room Relief
You can claim for Rent-a-Room Relief if you are a:
- Resident landlord
- Homeowner
- Tenant
- Guest house
However, being eligible to claim the relief comes with some key requirements:
- The property must be your only place of residence
- The room rented out must be furnished
- The rented room can’t be used for business purposes (like an office space)
- If you’re a tenant looking to get involved in the scheme, you need your landlord’s permission
Tax Threshold for Rent-a-Room Relief
As mentioned – the 2025/26 tax year threshold for Rent-a-Room Relief is £7,500. If you own or rent a property with a partner and wish to rent a room to a lodger, the threshold will be halved to £3,750 per person.
The threshold amount applies to each property, not per tenant. So, regardless of how many lodgers you let reside in your home, whether one person or five, you can only make the threshold amount before paying tax on your earnings.
What if You Make More Than the Threshold?
If you make more than the £7,500 threshold, you must pay tax on any excess income made. Luckily, you can still benefit from Rent-a-Room Relief regardless, as anything earned up to £7,500 is still considered tax-free.
Rent-a-Room Scheme Scenarios
Let’s look at two examples of people renting out a room in their home, and how their situations could result in paying tax or not.
Scenario 1:
Karen owns a house in Liverpool. She has decided to rent a room out to a lodger called Jess. Over the current tax year, she earns roughly £5,000 in rental income from Jess, below the threshold of £7,500. Therefore, she won’t have to pay tax on her £5,000 income or inform HMRC of her earnings.
Scenario 2:
Karen owns a house in Liverpool. She has decided to rent a room out to a lodger called Jess. Over the current tax year, she earns roughly £8,000 in rental income from Jess, over the threshold of £7,500. Therefore, she will have to pay tax on the amount over the limit (which in this case is £500).
Do You Need to Tell HMRC if You Rent Out a Room?
No, you don’t have to tell HMRC if you rent out a room in your home – but you do need to inform them when you exceed the Rent-a-Room Relief tax-free amount of £7,500.
Let us simplify this for you:
- Earned £7,500 or under – don’t need to report to HMRC
- Earned over £7,500 – do need to report to HMRC
Is the Rent-a-Room Scheme Worth it?
Yes, the rent-a-room scheme is worth it. For many, the relief is a great benefit and helps you gain money on top of your current day job – just by allowing a lodger to stay in your home.
And guess what? Individuals on Universal Credit can take advantage of Rent-a-Room Relief too. By participating in the scheme, whether on benefits or not, you can earn extra income, tax-free!
Personal Tax Services for You
It’s important to remain on top of your tax payments. If you do exceed the Rent-a-Room Relief tax-free allowance, you will need to report it to HMRC. If you fail to do so, you could face issues. However, there’s an easy way to manage your returns through self-assessment and avoid problems – by working with an accountant.
At LJS Accounting Services, we have a team of trusted accounting experts ready and waiting to help you. Our Personal Tax service makes tax returns simple. We will help calculate your final tax bill and file your return online by the set deadline while offering advice and guidance.
With over 10 years of experience, you can count on us to assist you when you need to pay tax on excess earnings from renting a room out in your home.
To speak with a member of our team, please contact us today. We look forward to hearing from you!
Keli Evans, Director at LJS Accounting Services, excels in taxation and statutory accounts. With a focus on strong client relationships, she leads a diverse portfolio, overseeing vital financial aspects like VAT, payroll, pensions, and taxation with a holistic and committed approach.
