Do You Pay Tax on Renting Out a Spare Room?
Renting out a spare room can be a useful way to bring in extra income.
You might rent to:
- A long-term lodger
- A student
- A professional working locally
- Someone staying during the week
But once money starts coming in, a common question is:
Do you have to pay tax on it?
Potentially, but the Rent a Room Scheme can allow some people to receive rental income from their home tax-free up to a set limit.
The rules depend on how the property is used, how much income you receive and whether the accommodation forms part of your main home.
What is the Rent a Room Scheme?
The Rent a Room Scheme is designed for people who let furnished accommodation within their main home.
If you qualify, you may be able to receive up to £7,500 of gross rental income per tax year tax-free.
If the income is shared with someone else, such as a joint owner, the threshold is generally reduced.
The scheme can apply whether you own or rent your home, although tenants should also check whether their tenancy agreement allows them to take in a lodger.
What counts as gross rental income?
The £7,500 threshold is based on gross receipts.
That can include more than just the basic rent.
For example, you may receive money for:
- Rent
- Meals
- Cleaning
- Laundry
- Other services provided to the lodger
These amounts can potentially form part of the total receipts considered under the scheme.
What happens if you receive less than £7,500?
If your qualifying gross receipts are below the Rent a Room threshold, the income may be exempt automatically.
For example:
- Rent received: £600 per month
- Annual income: £7,200
If the accommodation qualifies for the scheme and there are no complicating factors, the income may fall within the exemption.
That does not mean you should ignore the records entirely.
Keep evidence of what you received in case you need to confirm your position later.
What if you earn more than £7,500?
If your gross receipts exceed the threshold, the excess does not automatically mean the whole amount becomes taxable.
You may have a choice over how the taxable profit is calculated.
Broadly, you may be able to use:
- The Rent a Room threshold
- Or normal property-income rules using allowable expenses
The better option depends on your actual costs.
A simple example
Suppose you receive £10,000 during the tax year from a lodger.
If you use the Rent a Room method:
- Gross receipts: £10,000
- Rent a Room exemption: £7,500
- Potential taxable amount: £2,500
But if your genuine allowable expenses are particularly high, using the normal property-income calculation may produce a different result.
This is worth checking before completing your tax return.
Who can use Rent a Room Relief?
The scheme is generally aimed at people letting furnished accommodation in their only or main home.
This might include:
- A spare bedroom
- Part of your house
- Part of your flat
The accommodation needs to form part of the residence you occupy.
This is different from owning a separate buy-to-let property.
Can landlords use the scheme for a separate property?
Normally, no.
If you own a separate property and rent it to tenants, that income falls under normal property-income rules rather than the Rent a Room Scheme.
Rent a Room is connected specifically to furnished accommodation within your main residence.
What if you rent out an entire floor?
Potentially, but the facts matter.
If the accommodation still forms part of your home, Rent a Room Relief may be relevant.
However, arrangements involving:
- A self-contained flat
- A converted annex
- Separate access
- Little or no sharing of the main home
can require closer consideration.
The exact physical and legal arrangement can affect the tax treatment.
What if you rent through Airbnb?
Short-term letting does not automatically prevent Rent a Room Relief.
If you rent furnished accommodation within your main home, the scheme may still be relevant depending on the circumstances.
However, short-term letting can create additional issues involving:
- Frequency of stays
- Services provided
- Local planning rules
- Insurance
- Mortgage conditions
- Platform reporting
Do not assume every Airbnb arrangement qualifies simply because the room is inside your home.
What if the property is jointly owned?
Where qualifying income is shared between two people, the Rent a Room threshold is generally halved.
For example, if two people jointly receive the income, each may have a lower individual limit rather than both receiving a full £7,500 exemption.
This should be considered when deciding how the income is reported.
Do you need to complete Self Assessment?
If your qualifying Rent a Room income falls within the exemption, you may not need to complete a tax return solely because of that income.
If the income exceeds the threshold, Self Assessment may be required depending on your wider circumstances.
Other income can also affect whether you already need to file, including:
- Self-employed income
- Other rental income
- Significant investment income
- Capital gains
- Foreign income
Do not assume that because the letting is relatively small, there are no reporting obligations.
What expenses can you claim instead?
If you choose normal property-income rules rather than using the Rent a Room exemption, qualifying expenses may potentially include a reasonable proportion of costs such as:
- Utilities
- Cleaning
- Repairs
- Insurance
- Council Tax in some circumstances
- Replacement of certain domestic items
- Other genuine letting costs
The expenses need to relate to the rental activity.
You should not simply deduct an arbitrary proportion of every household cost.
Can you claim expenses and the full £7,500 allowance?
Generally, you do not simply receive the full Rent a Room exemption and then deduct all normal expenses on top.
You need to consider which calculation method applies.
This is why a large expense bill can make it worth comparing both approaches.
Keep records even if no tax is due
Useful records include:
- Rental payments
- Dates the room was occupied
- Agreements with lodgers
- Expenses
- Utility bills
- Cleaning costs
- Platform statements
- Deposits
- Bank records
Good bookkeeping can help if you have several income sources or the letting becomes more substantial.
Is a lodger different from a tenant?
Yes, legally they can be different.
A lodger usually lives in the same property as the homeowner and shares facilities.
A tenant may have greater rights and may occupy a more clearly separated property.
Tax is only one consideration.
You should also think about:
- Tenancy or licence agreements
- Deposit rules
- Insurance
- Mortgage conditions
- Right-to-rent requirements where applicable
- Safety responsibilities
For anything beyond a straightforward lodger arrangement, legal guidance may be appropriate.
What about mortgage lenders?
If you have a mortgage, check the terms before taking in a lodger.
Some lenders:
- Allow lodgers automatically
- Require notification
- Require consent
- Restrict certain letting arrangements
Breaching mortgage terms can create a much bigger problem than the tax itself.
Check your home insurance
Standard home insurance may not automatically cover a paying lodger.
Tell your insurer about the arrangement.
You may need:
- Updated home insurance
- Landlord-related cover
- Additional liability protection
Do not wait until you need to make a claim before checking.
What if you rent a room in a rented property?
You may potentially be able to use the Rent a Room Scheme even if you are a tenant rather than the homeowner.
But you need to check whether your tenancy agreement allows subletting or lodgers.
Tax relief does not override your contractual responsibilities to the landlord.
Could renting a room affect Capital Gains Tax?
Usually, having a lodger does not automatically mean you lose full Private Residence Relief when you later sell your home.
The position can become more complicated if part of the property is let or used in a way that is effectively separate from your own living accommodation.
If you are planning significant alterations or a more permanent rental arrangement, consider the future Capital Gains Tax position as well as the immediate rental income.
What about Council Tax?
Taking in a lodger can affect certain Council Tax discounts.
For example, someone receiving a single-person discount may need to review whether they remain eligible after another adult moves into the property.
The Council Tax rules are separate from the Rent a Room tax rules.
Do not forget the practical side
Before taking in a lodger, consider:
- Privacy
- House rules
- Payment dates
- Notice periods
- Shared facilities
- Guests
- Cleaning
- Utilities
- Security
- Parking
A clear written agreement can prevent disagreements later.
Frequently Asked Questions
How much can I earn tax-free from a lodger?
The Rent a Room Scheme can provide up to £7,500 of tax-free gross receipts per tax year where the conditions are met.
Is the £7,500 limit profit or income?
It is based on gross receipts rather than profit after expenses.
Can I use Rent a Room Relief for Airbnb?
Potentially, where furnished accommodation is let within your main home and the relevant conditions are satisfied.
Can I claim expenses as well?
The calculation depends on which method you use. You generally compare the Rent a Room method with normal property-income rules rather than automatically combining both.
Do I need to tell my mortgage provider?
You should check your mortgage terms. Some lenders require notification or consent before you take in a lodger.
Is the income taxable if it is under £7,500?
Qualifying income within the Rent a Room limit can generally be exempt.
Final thoughts
Renting out a spare room can provide useful additional income without necessarily creating a large tax burden.
But before taking in a lodger, understand:
- Whether Rent a Room Relief applies
- How much gross income you expect
- Whether normal expense rules would be better
- Whether Self Assessment is required
- Your mortgage and insurance obligations
- How the arrangement could affect other taxes
At Merranti Accounting, we help individuals understand rental income, Self Assessment and the tax implications of property-related income.
Explore our accountancy services or contact Merranti Accounting if you need help understanding your rental-income tax position.
Written by Jason Fudge
Managing Director, Merranti Accounting
Jason works with individuals and business owners on financial planning, taxation and commercial decisions. He focuses on helping clients understand the practical financial consequences of their choices and make informed decisions before problems arise.
Author image: Use Jason’s existing Merranti headshot.
