For landlords
The Rent a Room Scheme: £7,500 a year, tax free
How the government's Rent a Room Scheme lets you earn up to £7,500 a year tax free from a lodger in your own home — who qualifies, how it works, and what to watch for.
Updated
What the scheme actually is
The Rent a Room Scheme is a long-standing tax relief that lets an owner-occupier — or a tenant subletting with permission — receive rent from a lodger without paying income tax on it, up to a fixed annual threshold.
The threshold is £7,500 per year. That is gross rent received, not profit, and it includes anything you charge on top for meals, cleaning or laundry. If you charge £600 a month for a room with bills included, that is £7,200 a year and sits inside the allowance.
Worth knowing. The £7,500 figure is per property, not per lodger. Two lodgers at £400 a month each is £9,600, which takes you over the threshold even though neither individually would.
Who qualifies
The core requirement is that the room is in your only or main home, and that you live there at the same time as your lodger for at least part of the letting period. The accommodation must be furnished.
You can normally use the scheme if:
- You own the home, or you rent it and your own tenancy permits subletting
- You live in the property as your main home
- The room you are letting is furnished
- The room is not a self-contained flat with its own entrance and facilities
- You are not letting the space as an office or purely for business use
How it works in practice
If your total receipts are at or below £7,500, the relief is automatic. You do not need to register, claim, or complete a tax return for it. You simply do not pay tax on that income.
If you go over £7,500, you have a choice each year. You can pay tax on everything above the threshold with no deductions for expenses, or you can opt out of the scheme entirely and be taxed on your actual profit after allowable expenses. Which is better depends on how much you spend on the letting — someone with a large mortgage interest bill and high running costs may do better out of the scheme.
You have to actively tell HMRC if you want to be taxed on the profit method instead, via your Self Assessment return.
Why this matters in Bedford right now
Universal's construction phase is expected to draw in the order of 20,000 workers, running from 2026 until the resort opens in 2031. Universal has pledged that around 80 per cent of the workforce will come from Bedfordshire and Milton Keynes, but that still leaves a substantial number of people who need somewhere to sleep within reach of Kempston Hardwick.
For a homeowner with a spare room in Kempston, Stewartby or Wootton, the Rent a Room Scheme is the difference between a side income that is taxed and one that is not. At £600 a month you are inside the threshold and keeping all of it.
The things people get wrong
The most common mistake is assuming the scheme covers any room you let anywhere. It does not — it is specifically for a room in the home you live in. A buy-to-let, or a second property you let out entirely, falls under ordinary property income rules.
The second is forgetting that the allowance is shared. If you and your partner jointly own the home and jointly receive the rent, you get £3,750 each, not £7,500 each.
The third is ignoring everything else that letting a room triggers. The tax relief does not exempt you from telling your mortgage lender, your insurer, or — if you are a leaseholder — checking your lease.
Primary sources
Check these rather than taking our word for it. Rules and thresholds change.
This guide is general information, not legal, tax or financial advice. Rules change and individual circumstances differ — check the primary sources above, your council, or take professional advice before making a decision.
Common questions
- Do I need to tell HMRC if I earn under £7,500 from a lodger?
- No. If your total receipts from letting the room are £7,500 or less in the tax year, the relief applies automatically and there is nothing to declare or file for it.
- Does the £7,500 include money for bills and food?
- Yes. The threshold applies to everything you receive in connection with the letting, including charges for meals, cleaning, laundry and utilities. It is gross receipts, not profit.
- Can I use the Rent a Room Scheme if I rent my home rather than own it?
- Yes, provided your own tenancy agreement allows you to sublet or take in a lodger. Check your agreement and get your landlord's written permission first — taking in a lodger without it can breach your tenancy.
- What happens if I earn more than £7,500?
- You choose each year between paying tax on the excess above £7,500 with no expense deductions, or opting out of the scheme and being taxed on your actual profit after allowable expenses. You tell HMRC which you want through your Self Assessment return.
- Do I need to protect a lodger's deposit in a scheme?
- Generally no. A lodger who shares living space with a resident landlord is usually an excluded occupier rather than an assured shorthold tenant, and deposit protection rules do not apply. That said, holding the deposit fairly and returning it promptly still matters.