The Rent-a-Room Scheme is a UK government initiative that allows homeowners and tenants to earn up to £7,500 per tax year (2025/26) completely free of income tax by letting out a furnished room in their main home. The scheme was first introduced in 1992 and the threshold has been £7,500 since April 2016.
Unlike other property income, which requires self-assessment registration and careful record-keeping, the rent-a-room scheme operates automatically for most qualifying landlords: if your gross rental income (before expenses) is at or below the threshold, you simply do nothing — no tax return, no declaration to HMRC, no tax to pay.
At an average London room rate of around £900–£1,200/month, the scheme can mean thousands of pounds in completely tax-free income for homeowners who have a spare room.
To use the rent-a-room scheme, you must meet all of the following conditions:
The operation of the scheme depends on whether your gross rental income is above or below the £7,500 threshold:
The scheme is automatic. You do not need to do anything. You do not need to register for self-assessment, declare the income, or file a tax return (assuming you have no other reason to file one). HMRC does not need to know about the income.
You must complete a self-assessment tax return and choose one of two calculation methods:
Method A (Excess Amount): You pay tax only on the amount your gross income exceeds the threshold.
Formula: Tax = (Gross income − £7,500) × tax rate
Example: £10,000 income → (£10,000 − £7,500) × 20% = £500 tax
Method B (Actual Profit): Opt out of the scheme and declare your actual profit (income minus actual expenses like cleaning, insurance, maintenance, and a proportion of mortgage interest if applicable).
Formula: Tax = (Gross income − actual expenses) × tax rate
This is better when your actual expenses exceed £7,500.
Use this comparison to understand when each method gives a better result:
| Scenario | Method A (Excess) | Method B (Actual Profit) | Better Choice |
|---|---|---|---|
| Income £10,000, Expenses £500 | Tax on £2,500 = £500 | Tax on £9,500 = £1,900 | Method A |
| Income £10,000, Expenses £3,000 | Tax on £2,500 = £500 | Tax on £7,000 = £1,400 | Method A |
| Income £10,000, Expenses £8,000 | Tax on £2,500 = £500 | Tax on £2,000 = £400 | Method B |
| Income £15,000, Expenses £9,000 | Tax on £7,500 = £1,500 | Tax on £6,000 = £1,200 | Method B |
| Income £8,000, Expenses £1,000 | Tax on £500 = £100 | Tax on £7,000 = £1,400 | Method A |
All examples use basic rate tax (20%). Higher rate taxpayers should use their own rate (40%) in calculations.
Airbnb has become increasingly popular as a way to earn income from a spare room. The good news is that short-term lets through Airbnb qualify for the rent-a-room scheme, provided:
If your Airbnb room income is under £7,500 in the tax year, it is completely tax-free. This makes occasional Airbnb letting in your own home one of the most tax-efficient ways to earn supplementary income in the UK.
Airbnb lets in your home (where you also live) are generally not affected for council tax purposes. However, if you let your entire property short-term (when you are not present), the council tax position becomes more complex and may switch to business rates if the let exceeds 140 days per year in London (90 days applies to some planning permission limitations).
If you receive Housing Benefit or Universal Credit, lodger income may affect your entitlement:
If you currently claim the 25% single person discount on council tax, taking in a lodger may affect it. The discount applies when only one adult lives in the property. A lodger who is a full-time student, apprentice, or under 18 remains exempt and does not remove your discount. A non-exempt adult lodger will remove the discount — costing you the 25% reduction.
For most owner-occupiers using the rent-a-room scheme, you do not claim any mortgage interest relief (as the scheme uses the flat threshold rather than actual expenses). If you opt for Method B (actual expenses), you can include a proportionate share of mortgage interest as a finance cost — but unlike buy-to-let landlords (who received 20% tax credit), owner-occupiers using actual expenses for rent-a-room can still deduct the full interest cost proportionate to the let area. This is a significant difference from standard rental property tax rules.
Understanding the legal basis of your arrangement with a lodger is important for both parties:
A lodger in your main home typically has a lodger's licence, not an assured shorthold tenancy. This means:
If you let a self-contained annexe or a section of your home where the lodger has exclusive possession (their own entrance, bathroom, kitchen), they may have AST rights rather than lodger rights — even if you also live in the property. Legal advice is recommended in this case.
The rent-a-room scheme lets you earn up to £7,500 per tax year tax-free by letting out a furnished room in your main home. If your gross rental income is below this threshold, you do not need to declare it or pay any tax. The scheme applies to owner-occupiers and tenants who sublet (where their lease allows it). The threshold has been £7,500 since April 2016 and applies to 2025/26.
Yes. Airbnb letting of a furnished room in your main home qualifies for the rent-a-room scheme, as long as the property is your main residence and you are living there when guests stay. If your total Airbnb income from letting rooms in your home is below £7,500, it is completely tax-free. Above this, you complete a self-assessment return and choose between Method A (tax on excess over £7,500) or Method B (tax on actual profit). Check your mortgage terms and lease/freehold conditions before proceeding.
If your gross rent-a-room income exceeds £7,500, you must register for self-assessment and complete a tax return. You choose between Method A (pay tax on income minus the £7,500 threshold) or Method B (opt out of the scheme and pay tax on actual profit — income minus real expenses). Most people choose Method A as it results in less tax. You can switch between methods each year.
Potentially, yes. Most residential mortgage lenders require you to notify them if you plan to let a room. Many lenders are happy to grant consent for a lodger arrangement, but you should ask first. Taking in a lodger without telling your lender could technically breach your mortgage conditions. For Airbnb short-term lets, some lenders take a stricter view — check your specific mortgage terms or call your lender directly.
If two or more people jointly own or rent the property and both receive rent-a-room income, the threshold is divided equally between them. For two joint owners, each has a threshold of £3,750 per year (half of £7,500). So a couple jointly letting a room for £600/month (£7,200/year) would each have income of £3,600 — both under their individual £3,750 threshold, so no tax is due for either of them.
Lodger income can affect means-tested benefits. Under the rent-a-room scheme, the first £7,500 is generally disregarded for Housing Benefit purposes. For Universal Credit, up to £20/week of lodger income is disregarded with the rest treated as income. Council tax single person discount (25%) is lost if your lodger is a non-exempt adult — this can cost £400–£600 per year depending on your local rate. Full-time students are exempt from council tax and would not remove your discount.
No. If you use Method A (the standard rent-a-room scheme with the £7,500 threshold), you cannot also claim actual expenses. The scheme replaces expense deductions with a flat allowance. If you want to claim actual expenses (mortgage interest, cleaning, repairs, insurance), you must use Method B — which means opting out of the scheme and being taxed on your actual net profit instead.