Rent-a-Room Scheme UK 2026, £7,500 Tax-Free Lodger Allowance

Who qualifies for Rent-a-Room relief?

The relief applies when all of the following conditions are met:

• You own or rent your home and live there yourself, the property must be your only or main residence
• You let a furnished room or rooms in the property to one or more lodgers
• The room is furnished, unfurnished room lets do not qualify for Rent-a-Room relief
• The let is within the same building as your main home, a self-contained flat within your house may qualify, but a completely separate property does not
• Shared ownership and tenants: if you rent the property from a landlord and sublet a room, you can also use Rent-a-Room relief, but check your tenancy agreement permits subletting. Under a periodic Assured Tenancy from 1 May 2026, subletting remains subject to landlord consent
• Joint owners or occupiers: if two people share ownership and let rooms, the £7,500 threshold is split equally, each person's relief threshold is £3,750

How the £7,500 threshold works

The relief is structured around gross annual income from the lodger:

• Below £7,500 gross income: no tax is due, no Self Assessment return is needed solely because of the lodger income, and you do not need to notify HMRC unless you receive a notice to file
• Above £7,500 gross income: you must file a Self Assessment return. You then choose between two options: (1) pay tax only on the amount above £7,500, OR (2) opt out of the scheme and deduct actual allowable expenses from the full gross income
• The £7,500 threshold is per property, not per lodger, if you have two lodgers paying £4,000 each (£8,000 total), the total counts against the threshold
• Gross income includes rent, meals, laundry services, and any amounts charged for utilities, everything the lodger pays you counts towards the £7,500
• Deposits are not income, a deposit held pending return is not rent and does not count towards the threshold

Option 1, Pay tax on income above £7,500

If you stay in the scheme and your income exceeds £7,500, the taxable amount is simply:

• Taxable income = gross lodger income minus £7,500
• Example: £9,000 gross lodger income → £1,500 taxable. At 20% basic rate, tax = £300
• No expense deduction is allowed under this option, you cannot claim mortgage interest, council tax apportionment, or repairs against the excess
• This option is best when your actual allowable expenses are low relative to income, typically simple single-lodger arrangements with no significant maintenance or utility costs attributable to the let

Option 2, Opt out and use actual expenses

If you opt out of Rent-a-Room relief, your lodger income is taxed as standard rental income:

• Gross lodger income minus allowable expenses = taxable profit
• Allowable expenses: a proportional share of council tax, utility bills, insurance, cleaning, repairs, and a proportion of mortgage interest (subject to Section 24 restriction for residential letting)
• Opt-out is best when your expenses exceed £7,500, or when your actual costs are high relative to lodger income, for example a high-value property where proportional expenses are substantial
• Once you opt out, you must file a Self Assessment return with the SA105 property pages
• You can switch between Option 1 and Option 2 in different tax years, there is no permanent election

Lodger vs tenant, the legal distinction

Understanding the legal difference between a lodger and a tenant is critical after the Renters' Rights Act 2025:

• A lodger (occupier sharing with a resident owner or occupier) is a licensee, they have a licence to occupy, not a tenancy. The Renters' Rights Act 2025 does not apply to lodger arrangements where the landlord lives in the property
• A lodger can be asked to leave with reasonable notice (typically 28 days by convention, or the notice period agreed in the lodger agreement), there is no requirement to use Section 8 or the possession grounds regime
• A lodger becomes a tenant if: the owner moves out permanently, or the arrangement is structured to give the lodger exclusive possession of the whole property without shared facilities
• Always use a written Lodger Agreement, not a tenancy agreement, to clearly establish the licence relationship and the absence of exclusive possession
• HMO rules can still apply to a property with lodgers if it becomes occupied by 5 or more people from 2 or more households, check HMO mandatory licensing thresholds even where lodger arrangements are used

Rent-a-Room and Self Assessment

How lodger income interacts with your HMRC reporting obligations:

• Below £7,500 with no other Self Assessment obligation: you do not need to register for Self Assessment. If HMRC sends you a notice to file, declare the lodger income but claim full Rent-a-Room relief
• Already filing Self Assessment: add lodger income to your SA105 property pages. Tick the Rent-a-Room box. If income is below £7,500, the relief fully exempts it
• Above £7,500: you must file SA105 with either the scheme election (taxed on excess) or the opt-out figures (actual expenses). The return is due by 31 January (online) or 31 October (paper) following the end of the tax year
• MTD ITSA: once Making Tax Digital for Income Tax applies to you (from April 2026 if gross income above £50,000), lodger income must be included in quarterly digital updates alongside other rental income

Frequently asked questions