Since 1992 the UK has had a Rent a Room scheme which allows owners (or leaseholders with permission) to let out a furnished room in their own home. The tax year 2024 has a limit of earning £7,500 per person per year before it becomes eligible for tax purposes. This limit halves if the income is shared with someone else including domestic partners or co-owners. If your income is less than the £7,500 there is nothing you need to do. Over that amount, it must be declared on your tax return, where you will pay tax over that amount. Opting into the scheme triggers the tax-free allowance to be shown to your tax return.

Alternatively, the income can be entered into the tax return as well as any expenses in the property section.

Factsheets called “Rent a Room Scheme Self Assessment helpsheet HS223” is available on the UK government’s website as is “Helpsheet 222 How to calculate your taxable profits”

Remember to keep receipts in case your tax is investigated as the burden will be yours to prove income. The total receipts will include rental income before any expenses; as well as any amounts you receive for meals, goods and services, such as cleaning; internet electricity or laundry and then any ‘balancing charges’

The following is one of the examples given on the Government website:

1.4 Example

Chris rents out a room in his own home. The rent is £200 a week plus contributions to heating and light. His gross receipts for 6 April 2023 to 5 April 2024 are £10,600 (£10,400 rent plus £200 for the heating and light).

Chris has expenses of £9,000:

  • if Chris uses his actual profit (Method A), he pays tax on £1,600 (£10,600 minus £9,000)
  • If Chris uses his gross receipts over the Rent-a-Room limit (Method B), he pays tax on £3,100 (£10,600 minus £7,500)

It is better for Chris to pay tax on his actual profit, using Method A. If Chris had previously asked to pay tax using Method B, he will need to tell HMRC that he wants to change back to paying tax on his actual profit (Method A).

The scheme is used when you let out a furnished room to a lodger. You cannot use the scheme if the room is not part of your main home, nor if it is unfurnished, nor if the accommodation is used as an office or for any business. It is also not applicable if it is in your UK home and you live abroad.

The scheme was intended to increase the low costing rental market which gave more choice to the tenants on where they live. Originally meant for those that travel around the country for work and require temporary accommodation it also helps home owners with spare rooms to create another source of income. The government state that a lodger is a person who live in the same household as the owner and shares certain rooms with them – for instance a kitchen, living room and bathroom, though not necessarily them all.