How much can I earn tax-free renting a room?

What counts towards the £7,500

The scheme looks at your gross receipts. This means all the money you get, before you take off any costs. It includes:

• the rent your lodger pays
• any money for meals, goods or services, such as cleaning or laundry
• any "balancing charges" (a tax adjustment if you sell items you claimed allowances on)

So if you charge £600 a month rent and £50 a month for meals, your gross receipts are £650 a month, or £7,800 a year. That is over the £7,500 limit.

The two ways to work out your tax

If your gross receipts go over the limit, you can pick the way that gives you the lower tax bill.

HMRC uses Method A unless you tell them you want Method B.

Worked example 1: under the limit

You let a furnished room for £550 a month. That is £6,600 a year. You do not share the income.

£6,600 is under £7,500, so the money is tax free. The relief is automatic. You do not need to do anything.

Worked example 2: over the limit

Your gross receipts are £10,600 for the year and your expenses are £9,000.

• Method A: £10,600 minus £9,000 = £1,600 taxable profit
• Method B: £10,600 minus £7,500 = £3,100 taxable

Method A is better here, because your expenses are high. If your costs were low, Method B could give the lower bill.

Who can use the scheme

• You must let a furnished room in your only or main home.
• It can be a lodger in your house, or a bed and breakfast or guest house you run from your home.
• It does not apply to a home that has been turned into separate flats.
• It does not apply if you let your UK home while you live abroad.

Deadlines for choosing or opting out

To switch methods, or to opt out of the scheme for a year, you must tell HMRC within one year of 31 January after the end of the tax year. The time limit can only be extended in certain cases, for example if you were seriously ill and could not deal with your tax affairs.

Other things to know

• If your receipts are over the limit, you must fill in a Self Assessment tax return.
• You are responsible for Council Tax, and you can include part of the cost in the rent you charge.
• You can only charge a lodger what you paid for gas and electricity, plus VAT.
• As a resident landlord, you do not have to protect a lodger's deposit in a government scheme.
• Capital Gains Tax may apply when you sell, if you let out part of your home.

Related guides

• What is the £1,000 property allowance?
• How is tax on rental income worked out?
• Can I sublet my rented home?
• When do I need to register for Self Assessment?

Where these figures come from

• The Rent a Room Scheme, GOV.UK
• HS223 Rent a Room Scheme helpsheet, HMRC
• Renting out a room: rent, bills and tax, GOV.UK