Letting a furnished room to a lodger? The first GBP 7,500 of what you earn each year can be completely tax-free. Here is how Rent a Room Relief works and when to opt out of it.
If you have a spare room and you let it to a lodger, the taxman gives you a generous head start: the first GBP 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 GBP 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 Rent a Room threshold is GBP 7,500 for the 2025/26 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 GBP 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 GBP 3,750 each. The total household tax-free amount stays at GBP 7,500.
Your lodger pays GBP 600 a month, so GBP 7,200 across the year. That is below the GBP 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.
Once you go over GBP 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 GBP 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.
Suppose your lodger pays GBP 11,000 over the year and your allowable expenses come to GBP 1,200.
Method B leaves you taxed on GBP 3,500 instead of GBP 9,800, a clear win here. If you are a basic-rate taxpayer at 20 percent, that is a tax bill of around GBP 700 under Method B versus GBP 1,960 under Method A, a saving of over GBP 1,200. The rental income tax calculator lets you test both methods against your own figures and rate band.
| Method | Taxable amount | Expenses allowed | Best when |
|---|---|---|---|
| A (actual profit) | Rent minus expenses | Yes | High expenses, lower rent |
| B (excess over GBP 7,500) | Rent minus GBP 7,500 | No | High rent, low expenses |
The conditions are specific. You qualify if:
You do not qualify if:
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.
People often confuse these two reliefs. They are not the same and, on the same income, you cannot use both.
| Rent a Room Relief | Property Allowance | |
|---|---|---|
| Amount | GBP 7,500 | GBP 1,000 |
| Applies to | Lodger in your own home | Property income generally |
| Furnished only? | Yes | No |
| Must you live there? | Yes | No |
For a genuine lodger in your home, Rent a Room Relief is almost always the more generous choice given the GBP 7,500 versus GBP 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.
Rent a Room Relief itself is not changing, but the reporting backdrop is. From April 2026, landlords and sole traders with qualifying income over GBP 50,000 must keep digital records and submit quarterly updates. Lodger income that stays below GBP 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.
A spare room can quietly pay your mortgage and the first GBP 7,500 of it never sees the taxman. Just remember to elect for the right method the moment you cross the threshold.
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