Rent a Room Scheme: £7,500 tax-free from a lodger, and the rules

Who can use it

HS223 says you can use the scheme if you let a furnished room to a lodger, or if your letting amounts to a trade, such as a guest house or bed and breakfast, or includes services like meals and cleaning. GOV.UK adds that you can let as much of your home as you want, and that it applies whether or not you own your home.

You cannot use it if the accommodation:

• is not part of your main home when you let it;
• is unfurnished;
• is used as an office or for a business (a lodger working at home in the evenings or at weekends, or a student with study facilities, is fine);
• is in your UK home and let while you live abroad;
• is a home converted into separate flats (GOV.UK).

How the tax works

Gross receipts count, not profit: rent before expenses, plus payments for meals, goods and services such as cleaning or laundry, and any balancing charges, usually for the tax year from 6 April to 5 April.

HMRC uses Method A automatically. To use Method B, you must tell HMRC, and it continues until you ask to change back; it stops by itself if receipts drop below the limit. The limit is the same even if you let for less than 12 months, and if you move home during the year you add together the rent from both homes.

HMRC’s example. Chris lets a room for £200 a week plus heating and light: gross receipts of £10,600 in 2025 to 2026, with £9,000 of expenses. Method A taxes £1,600; Method B taxes £3,100. Method A is better for him.

Our calculation, same rules. A lodger paying £650 a month: £7,800 a year, £300 over the limit. With £1,000 of expenses, Method A taxes £6,800 and Method B taxes £300, so Method B is better.

Deadline. HS223 says you must tell HMRC “within one year of 31 January following the end of the tax year” if you want to opt out below the limit, or start or stop Method B. Its own worked example, however, gives 31 January 2027 for the tax year ending 5 April 2026. Payotte reads the rule and the example as pointing to different dates; to be safe, act by the earlier one, 31 January 2027, or confirm with HMRC.

Losses. You cannot create a loss while exempt or on Method B. To claim one, choose Method A.

Rent a Room or the property allowance?

The property allowance gives up to £1,000 a year of property income tax-free, without deducting expenses (HMRC). For a lodger in your own home, the Rent a Room limit of £7,500 is the higher of the two.

Your lodger’s rights (GOV.UK, England)

Other points from GOV.UK:

• You are responsible for keeping the property safe and in good repair.
• A resident landlord is not legally required to protect the deposit in a government scheme.
• Tell your council if a lodger means you lose the single person council tax discount.
• You can only recharge gas and electricity at what you paid plus VAT.
• Letting rooms to more than 2 people may make your home an HMO, with extra standards and often a licence: see landlord registration and licensing.
• Letting part of your home can affect Capital Gains Tax when you sell, although Private Residence Relief and Letting Relief may apply.

If you have a mortgage: GOV.UK’s renting guidance says you must get your lender’s permission to let a property with a mortgage; check your mortgage terms before taking in a lodger.

Scotland, Wales and Northern Ireland

The tax scheme is UK-wide: HS223 sets one limit for all. The lodger rules in the table above are from GOV.UK’s guide for England; Payotte did not review the equivalent occupancy rules in the other nations. Letting a whole property is different: see renting in England, Renting Homes Wales, the private residential tenancy in Scotland and renting in Northern Ireland.

Which professional to consult

An accountant or tax adviser can compare Method A and Method B on your figures. A mortgage adviser can tell you whether your lender allows a lodger.