Earn extra income from the Rent A Room Scheme

With the cost of seemingly everything rising so much, you may have considered others ways to earn some extra income, perhaps selling off possessions you no longer want at car boot sales or online via eBay or Facebook. Maybe you’ve thought about getting another part-time job or setting up your own side-hustle business.

You may not have considered renting out a room in your home, perhaps to a student studying at a local university or someone who works nearby during the week but goes home at weekends. The Rent a Room Scheme could boost your income.

Need to know! You don’t have to be a homeowner to take advantage of the Rent a Room Scheme. Even if you’re renting, you may still be able to let out a room in your home to a lodger, although some lease agreements do not allow this.

Rent A Room Scheme key facts

• The Rent a Room Scheme allows you to earn up to £7,500 a year tax-free by letting out a furnished room in your only or main home. If you share the income with someone else, you can use the Rent a Room Scheme to each earn £3,750 a year in tax-free income.
• The Rent a Room Scheme can’t be used for unfurnished rooms or homes converted into separate flats. If you run a guest house, B&B or provide catering and cleaning as part of a letting business, you can still take part in the Rent a Room Scheme.
• If you’re the owner of the property and have a mortgage, check with your mortgage lender to make sure you’re allowed to rent out a room. Also check with your home insurer that their terms allow you to take in a lodger.
• If you charge for meals or laundry services, this must be added to the rent you receive, which may affect whether you go over the £7,500 (or £3,750) threshold. But you’ll only pay Income Tax if your income goes over the Personal Allowance threshold, which is £12,570 a year.
• Income from the Rent a Room scheme may affect some means-tested benefits. And if you qualify for the 25% single person Council Tax reduction, you’ll lose it if you accept a lodger into your home.

The Rent A Room Scheme and tax

If your income from the Rent A Room Scheme is below the threshold, your tax exemption is automatic and you don’t have to fill in a tax return or contact HMRC. However, if your “gross receipts” (ie rental income before expenses, plus any amounts you receive for meals, cleaning, laundry, etc, and any balancing charges) from the Rent A Room Scheme is above the threshold, you can either pay tax on your:

• actual profit (ie your total receipts less any expenses and capital allowances) or
• gross receipts over the Rent-A-Room-Scheme threshold (ie your gross receipts minus £7,500 or £3,750 if you co-own the property), but you can’t deduct any expenses or capital allowances if you choose this second option.

Whichever option you choose, you report to HMRC (the UK tax authority) via a Self Assessment  tax return and supplementary pages UK Property SA105. HMRC won’t send you a tax return or supplementary pages, you must sort it yourself.

Tax is only payable on the amount over the £7,500 threshold and you claim your tax-free allowance via your Self Assessment tax return. If you already complete a tax return, for example, because you’re a sole trader, you report your Rent A Room Scheme income when completing your Self Assessment tax return.

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Blog content is for information purposes and over time may become outdated, although we do strive to keep it current. It's written to help you understand your Tax's and is not to be relied upon as professional accounting, tax and legal advice due to differences in everyone's circumstances. For additional help please contact our support team or HMRC.