Rent your spare room tax-free

Ask the Estate Agent

Got a spare room and in need of a little extra income? Using the Rent a Room scheme to get a lodger could be worth considering.

What is Rent a Room?

Landlords typically get taxed on income they earn from renting property. But under the Government’s Rent a Room scheme, householders could earn an income from letting spare rooms – and receive tax relief on it.

Do I have to be a homeowner?

No. Rent a Room is available to both homeowners and tenants with furnished accommodation. If you’re a tenant, you can still sublet spare rooms under Rent a Room, but make sure your own lease agreement permits it first – as many will not.

How much can I earn before I have to pay tax?

You can earn a maximum of £7,500 tax-free each year from letting furnished spare rooms. If you let jointly with others, the relief is split.

So, if you arrange with your partner to have a lodger for example, you can earn £3,750 per year from him or her before having to pay tax.

You can top up your rental income by charging for additional services, such as cleaning or laundry. But remember that all income received from letting spare rooms during the tax year will be taken into account under the Rent a Room scheme.

What accommodation is covered by Rent a Room?

The tax exemption under Rent a Room is available for a room or an entire floor – so long as the accommodation is furnished and within your only or main residential property. So long as you meet the criteria, you can also apply Rent a Room to furnished space in bed and breakfasts and guesthouses.

Rent a Room doesn’t apply if you are renting space, such as an office, but not living there. And you cannot take advantage of the relief if your property has been converted into flats.

Do I have to join Rent a Room?

If the total income you receive from letting your spare rooms each year is less than the Rent a Room threshold, then your tax relief is automatic. You don’t have to do anything.

But if it’s over the threshold, you must complete a tax return to HMRC. You have two choices here:

1. Opt into Rent a Room

Claim your relief on the first £7,500 on your tax return.

2. Opt out of Rent a Room

Don't sign up to the scheme and instead record your income and expenses on the property pages of your tax return.

How many people does Rent a Room impact?

There are thought to be 19 million empty bedrooms in homes across England alone, according to Matt Hutchinson, director of flat and house share site, SpareRoom.co.uk and apartment share site, SpareRoom.com in New York.

And freeing up just 5% of these rooms would accommodate almost a million people – equivalent to a city the size of Birmingham.

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