Do I need to pay tax if I rent out a room in my home?

Renting out a spare room can be a practical way to generate additional income while making good use of your property. Many homeowners in the UK do this through lodgers, short-term stays, or longer agreements. However, you must be aware of how HMRC treats that income and what allowances apply before assuming it is tax-free.

The Rent a Room Scheme explained

The UK government’s Rent a Room Scheme is designed to encourage people to let furnished rooms in their homes. It allows you to earn up to £7,500 per year tax-free from letting out a room in your main residence. If you share the income with someone else, such as a partner or spouse, each of you gets half the allowance (£3,750 each).

The allowance covers rent and any additional services you might provide, such as meals or cleaning. It applies whether your lodger stays full-time, part-time, or just a few nights a week.

To qualify for the scheme, you must:

• Be a resident landlord, meaning you live in the property yourself

• Rent out furnished accommodation within your main home

• Not be letting out the entire property

You can use the scheme for lodgers, students, or short-term guests through platforms such as SpareRoom or Airbnb, provided it is your main home and not a separate rental business.

When you don’t have to pay tax

If your total income from renting out a room is below £7,500 in a tax year, you don’t need to pay any tax on it. You also don’t need to file a tax return if you have no other income that requires one.

For example, if you charge a lodger £500 a month, your annual income from that arrangement would be £6,000. Because this is below the £7,500 threshold, it is automatically covered by the Rent a Room allowance and no tax is due.

If you rent the room jointly, such as with your partner, the allowance is halved. So, if you both receive £3,000 each from the same rental income, this still falls under the £3,750 per person limit and remains tax-free.

When tax becomes payable

If your rental income exceeds the £7,500 limit, you must pay tax on the amount above that threshold. You have two options:

1. Use the Rent a Room Scheme and pay tax only on the portion that exceeds £7,500.

2. Opt out of the scheme and deduct actual expenses (like repairs, insurance, and utility costs) to calculate your taxable profit instead.

For example, if you earned £9,000 from a lodger during the year, you would pay tax on £1,500 under the Rent a Room Scheme (£9,000 minus £7,500). Alternatively, if your actual expenses were high, opting out might result in a lower taxable profit.

You can make or change your election each tax year by notifying HMRC through your Self Assessment return.

Opting out of the Rent a Room Scheme

You may wish to opt out of the scheme if your costs are high or if you regularly let out more than one room. To do this, you must calculate your taxable profit as normal rental income.

Allowable expenses may include:

• A portion of your utility bills, council tax, and broadband

• Repairs and maintenance related to the let room

• Cleaning costs or replacement furnishings

• Letting or advertising fees

You cannot claim expenses for parts of the property used personally or for improvements such as new extensions.

If you choose to opt out, you must keep detailed records of income and expenses and complete the property pages on your Self Assessment tax return each year.

How to report your income

If your income is within the £7,500 allowance, HMRC does not require you to report it unless you already complete a Self Assessment for other reasons.

If you earn more than the allowance, you must register for Self Assessment and declare your rental income. You can do this online through HMRC’s website, and your tax will be calculated based on your overall income for the year.

For most individuals, this means paying tax at your usual Income Tax rate of 20%, 40%, or 45% on the profit above the allowance.

Record keeping and good practice

Even if you earn below the allowance, keeping records is sensible in case HMRC requests clarification or your income changes in the future. Maintain copies of:

• Lodger agreements or tenancy terms

• Rent receipts or bank statements

• Records of repairs, cleaning, and utility usage

These details make it easier to calculate profit accurately if your income ever exceeds the tax-free limit.

It’s also worth noting that you may need to inform your mortgage provider or insurer before taking in a lodger. Some lenders require approval, and some insurance policies may need updating to reflect the new arrangement.

Renting through Airbnb or short-term stays

If you rent your spare room on Airbnb or a similar platform and live in the property, you can still use the Rent a Room Scheme. However, if you let the entire property while you’re away, the income no longer qualifies. In that case, you must report it as standard property income, with the £1,000 property allowance applying instead of the £7,500 Rent a Room allowance.

If you frequently host short-term guests and treat it as a business, you may also have to register for business rates or comply with local council regulations, depending on your location.

Council tax and other implications

Having a lodger does not normally affect your Council Tax band, but you may lose the 25% single person discount if you previously lived alone. Always inform your local council when someone moves in to avoid future disputes.

If your property is a flat or shared house, ensure your tenancy agreement allows subletting or taking in a lodger. If you are a leaseholder, check your lease for restrictions.

Limited companies and lodgers

The Rent a Room Scheme is only available to individuals, not companies. If your property is owned through a limited company, rental income is treated as business income subject to Corporation Tax. In most residential cases, this does not apply, as homeowners typically hold their main residence personally rather than through a company.

Common mistakes to avoid

Many homeowners make simple errors when renting out a room, such as:

• Assuming all rental income is tax-free

• Forgetting to count additional services (like meals or laundry) within the £7,500 limit

• Failing to report income that exceeds the allowance

• Ignoring mortgage or insurance conditions

• Misunderstanding the difference between a lodger and a tenant

A lodger lives in your home and shares facilities with you, whereas a tenant rents separate accommodation. The distinction affects both legal rights and tax treatment, so it’s important to be clear on which arrangement applies.

Conclusion

If you rent out a room in your main home, you can earn up to £7,500 per year tax-free under the Rent a Room Scheme. If your income exceeds this threshold, you must declare it and pay tax on the excess, or choose to opt out and deduct actual expenses.

By keeping clear records, understanding the rules, and checking your insurance or mortgage conditions, you can benefit from extra income without unexpected tax problems. Renting out a room can be a practical and rewarding way to make use of your property while staying on the right side of HMRC.