Rent a Room relief: £7,500 a year tax-free from a lodger
How the relief works, what to tell your lender, insurer and council, and when opting out saves you money
Taking in a lodger is one of the few ways to earn a meaningful sum from your home without paying tax on it. Rent a Room relief lets you receive up to £7,500 a year from letting furnished rooms in the home you live in, with nothing to declare if you stay under the limit. This guide covers the rules, the practical things that need sorting first, and the situations where the relief is not the best option.
Who can use it
The relief applies if you let furnished accommodation in the home you live in. You can be an owner or a tenant, though a tenant needs the landlord's permission. It covers a lodger who shares your kitchen and bathroom, and also short-stay guests such as students during term time.
It does not cover:
- A self-contained flat with its own entrance and facilities.
- A property you do not live in, even if it was once your home.
- Rooms let as an office or for storage.
- Income from a home you own jointly, unless you split the relief. Two owners get £3,750 each.
The £7,500 figure is gross receipts, including any charge for meals, cleaning or bills. If you charge £600 a month rent plus £50 for bills, that is £7,800 a year and you are over the limit.
How the tax works
Under £7,500. Nothing to do. You do not need to file a tax return for this income or tell HMRC, unless you already file for other reasons, in which case tick the box confirming you are within the relief.
Over £7,500. You have two choices and can switch each year:
| Method | How tax is worked out | Best when |
|---|---|---|
| Rent a Room, method B | Tax on receipts above £7,500, with no expense deductions | Your costs are low |
| Normal method | Tax on receipts minus actual expenses | Your costs are high or you made a loss |
Take a lodger paying £9,000 a year. Under method B you pay tax on £1,500, which is £300 for a basic-rate taxpayer. Under the normal method you deduct a share of mortgage interest, bills, insurance and repairs. If those add up to more than £7,500 the normal method wins.
To use method B when over the limit you must tell HMRC by filing a return and claiming the relief. Losses cannot be created under Rent a Room, so anyone with unusually high costs should opt out for that year.
What to sort out first
Mortgage. Most lenders require you to tell them about a lodger, and many allow it without changing the terms. Some restrict the number. Check your terms and get consent in writing. Mortgages are regulated, so this is information only.
Insurance. A lodger changes your risk. Tell your home insurer or you may find a claim rejected. Some policies exclude theft by a lodger unless there is forced entry. Contents cover for the lodger's own belongings is their responsibility.
Council tax. If you live alone you receive a 25% single-person discount. A lodger usually ends it, so budget for the full bill. Full-time students and some other people are disregarded and would not affect the discount. Check with your council.
Benefits. Lodger income can affect Universal Credit and Housing Benefit. Report it.
Right to rent. In England you must check that any adult lodger has the right to rent before they move in, by seeing their passport or share code.
Leasehold. Some leases forbid lodgers or require the freeholder's consent.
The lodger relationship
A lodger who shares your living space is an excluded occupier, not a tenant. They have far fewer rights than a tenant under the Renters' Rights Act, and you can ask them to leave with reasonable notice, usually the length of the rent period, without a court order. A simple written lodger agreement covering rent, notice, house rules and deposit avoids arguments later. You do not have to protect a lodger's deposit in a government scheme.
Watch out for
- Counting the limit per property rather than per person. Joint owners each get £3,750, not £7,500 each.
- Letting a room while you live elsewhere. That is ordinary rental income with a £1,000 property allowance instead.
- Forgetting that when you sell, a lodger does not usually affect your capital gains tax exemption on your home, but letting a self-contained part of it can.
- Assuming the £7,500 limit will rise. It has been fixed since 2016.