Rent a Room Relief
£7,500 Tax-Free Lodger Income (2026/27)

If you have a spare room and you let it to a lodger, the taxman gives you a generous head start: the first £7,500 you earn from it each year can be entirely tax-free, with no expenses to track and, below that threshold, nothing to declare. Rent a Room Relief is one of the simplest and most valuable reliefs in the UK tax system, and with rents where they are, plenty of homeowners are using a lodger to help cover the mortgage without realising the income is shielded.

The relief sits alongside, but is distinct from, the property allowance, which is a separate £1,000 exemption for property income generally. The crucial difference is that Rent a Room Relief only covers a lodger in the home you live in, while the property allowance covers wider rental income. If you are a landlord with a separate let property, you will also want to understand how Making Tax Digital affects landlords from 2026 onwards.

The 2026/27 Threshold and How It Works

The Rent a Room threshold is £7,500 for the 2026/27 tax year, unchanged from recent years. It is a gross figure, applied to your total receipts from the lodger, not your profit. That means it captures not just the rent but also any money the lodger pays you for meals, cleaning, laundry or utilities as part of the arrangement.

Below the threshold, the relief applies automatically. You do not claim it, and if a lodger is your only relevant income source you do not need to file anything because of it. Above the threshold, you must report the income and make a choice between two methods, which we come to below.

One catch trips up couples constantly. The £7,500 belongs to the property, in a sense, not to each individual. If two or more people receive the lodger income, typically a married couple or civil partners, the threshold is split, giving £3,750 each. The total household tax-free amount stays at £7,500.

If you let a spare room for £600 a month

Your lodger pays £600 a month, so £7,200 across the year. That is below the £7,500 threshold. The income is entirely tax-free, you owe nothing on it, and if it is your only untaxed income you do not even need to mention it to HMRC. You also cannot deduct any expenses, but you do not need to, because there is no tax to reduce. This is the cleanest possible outcome and a big reason the scheme is so popular.

When Your Lodger Income Exceeds £7,500

Once you go over £7,500, the relief does not vanish; it changes shape. You now pick whichever of two methods leaves you paying the least tax.

Method A: ordinary profit basis. You ignore Rent a Room Relief and are taxed on your actual profit, rent received minus allowable expenses such as a share of insurance, repairs, and wear and tear on furnishings. This is the better choice when your expenses are high relative to the rent.

Method B: alternative basis. You are taxed only on the amount above £7,500, with no expense deductions allowed. This is usually better when rent is high and expenses are low. You must actively elect for Method B on your Self Assessment return; otherwise HMRC defaults you to Method A.

Worked example: £11,000 of lodger income

Suppose your lodger pays £11,000 over the year and your allowable expenses come to £1,200.

• Method A (actual profit): £11,000 minus £1,200 = £9,800 taxable.
• Method B (excess over £7,500): £11,000 minus £7,500 = £3,500 taxable, no expenses.

Method B leaves you taxed on £3,500 instead of £9,800, a clear win here. If you are a basic-rate taxpayer at 20 percent, that is a tax bill of around £700 under Method B versus £1,960 under Method A, a saving of over £1,200. The rental income tax calculator lets you test both methods against your own figures and rate band.

Who Qualifies, and Who Does Not

The conditions are specific. You qualify if:

• You let furnished accommodation.
• The accommodation is in your own home, the residence you live in, whether you own it or rent it (if you rent, check your own tenancy permits subletting).
• The lodger lives in the home and shares the living space with you.

You do not qualify if:

• The accommodation is unfurnished.
• The room is in a property you do not live in (that is ordinary rental income).
• The space is let as an office or for business use rather than as living accommodation.
• The home has been converted into separate, self-contained flats.

A particularly important point for the self-employed: if you run a business from home and let a room separately to a lodger, the two are treated independently. Your home-office deduction and your Rent a Room Relief do not interfere with one another.

Rent a Room vs the Property Allowance

People often confuse these two reliefs. They are not the same and, on the same income, you cannot use both.

For a genuine lodger in your home, Rent a Room Relief is almost always the more generous choice given the £7,500 versus £1,000 gap. The property allowance guide explains where the smaller relief is the right tool, typically for modest income from a property you do not live in.

What Changes Under Making Tax Digital

Rent a Room Relief itself is not changing, but the reporting backdrop is. From April 2026, landlords and sole traders with qualifying income over £50,000 must keep digital records and submit quarterly updates. Lodger income that stays below £7,500 and is your only untaxed income still requires no return. But if you cross the threshold or already file Self Assessment, expect to record the position digitally rather than once a year on paper.