If you have a spare room, the Rent a Room Scheme is one of the most generous tax breaks available, letting you earn a meaningful amount tax free. This guide explains how the Rent a Room Scheme works in 2026/27, who can use it, and when it is better to opt out.
What is the Rent a Room Scheme?
The Rent a Room Scheme lets you earn up to £7,500 a year tax free from letting furnished accommodation in your own home. It is designed to encourage people to take in lodgers, and the threshold is the same whether you let one room or several, as long as it is in the home you live in.
Who can use it?
You can use the scheme if you let a furnished room in your main home to a lodger, whether you own the home or rent it yourself, provided your own tenancy allows it. It covers taking in a lodger who lives with you, and can also apply to running a small bed and breakfast or guest house from your home. It does not apply to rooms let as an office or to whole properties let separately.
How it works
If your income from letting the room is £7,500 or less in the year, it is completely tax free and you usually do not even need to tell HMRC. If you earn more than £7,500, you have a choice. You can pay tax only on the income above £7,500, or you can opt to be taxed normally on your profit after expenses, whichever leaves you better off.
Sharing the threshold
The £7,500 limit is halved to £3,750 each if two people receive income from letting rooms in the same property, for example a couple who jointly own the home. So the total tax free amount for the property stays at £7,500, just split between the owners.
When to opt out
The scheme is not always the best choice. If your expenses of letting the room are high, or you make a loss, you may be better off being taxed in the normal way, deducting your actual expenses, rather than using the £7,500 allowance. You can choose each year, so it is worth comparing the two if your income is above the threshold.
How to claim
If your receipts are within the £7,500 limit, the relief is automatic and there is nothing to do. If they are above it, you report the income on your Self Assessment return and choose how you want to be taxed. Keeping a simple record of your rental income and any expenses makes the choice easy.
Frequently asked questions
How much can I earn tax free from a lodger?
Up to £7,500 a year under the Rent a Room Scheme, from letting furnished accommodation in your own home.
Do I need to tell HMRC about Rent a Room income?
If it is £7,500 or less, usually not. Above that you report it on Self Assessment and choose how to be taxed.
Can a couple both claim £7,500?
No. If two people receive the income, the allowance is halved to £3,750 each, so the total for the property stays at £7,500.
When should I opt out of the scheme?
If your actual expenses are high or you make a loss, being taxed normally on your profit may be better than using the £7,500 allowance.