Rent a Room relief: letting a room in your home

Rent a Room relief lets you earn money from letting a furnished room in your own home without paying tax on it, up to £7,500 a year. You have to live in the property yourself, and the room has to be furnished. If all of that applies, the rent you get from a lodger is not taxed at all¹.

Above that figure you have a choice. You can pay income tax on the amount over £7,500, or pay tax on all the rent and claim tax back on allowable expenses such as furniture or services you provide³. The relief is aimed at people with a spare room, and it is one of the few ways to bring in money at home without a tax bill⁴.

The tax position is only half the picture. Rent counts as taxable income and can affect benefit payments, and the rules differ sharply between Universal Credit, Housing Benefit and the bedroom tax⁵. Most mortgage agreements allow you to rent a room, but you usually need your lender's consent, and if you rent your home you need your landlord's agreement too³.

What counts as rental income

For tax purposes, rental income is the rent you receive from letting property, and it sits alongside pensions, savings interest and wages as income that HMRC expects to be taxed¹¹. Rent counts as taxable income, which is why it can affect benefit payments as well as your tax bill¹².

The Rent a Room Scheme carves out an exception. It allows you to earn some income from a lodger tax free if you have a spare room⁴. The conditions are specific: you live in the same property, the room you let is furnished, and the rent is not more than £7,500 a year³. Where all three apply, no income tax is due on the rent at all³.

What you charge for is not just the room. If you provide meals, that changes how the money is treated for means-tested benefits. If you provide at least one meal a day, only 50 per cent of the rent you get above £20 a week is counted as income². Without meals, any rent above £20 a week counts as income for claimants of income-related ESA, income-related JSA, income support, carer's allowance or pension credit².

A worked example makes the difference plain. On a £60 weekly charge for a room plus meals, £20 of that £60 is counted as income³. Without meals, £40 of the £60 would be treated as income³. The meals you provide reduce the amount that counts against your benefits.

How rental income is taxed: as non-savings income

Rental income is non-savings income. It is added to your wages, pension and other earnings and taxed at the rate that applies to you, rather than being treated like savings interest or dividends. Within the Rent a Room limit there is nothing to pay, because the relief removes the rent from the tax calculation altogether¹.

HMRC lists the income you do not pay tax on, and rent from a lodger below the Rent a Room Scheme limit is on that list, alongside the first £1,000 of income from self-employment under the trading allowance, the first £1,000 of income from property you rent unless you are using Rent a Room, ISAs, National Savings Certificates, dividends under your dividends allowance, and premium bond or National Lottery wins¹.

If your rent goes above £7,500, the two routes are set out plainly. You can either pay income tax on the amount over the £7,500, or pay tax on all the rent and claim tax back on any expenses¹³. The second route suits a landlord with significant costs, such as furniture or services provided to the lodger, because those expenses become deductible³.

There is a separate rule for non-residents. If you live abroad and receive UK rental income, that income is taxable in the UK, and you can apply to HMRC for approval to receive your rental profits with no tax deducted. In return, HMRC will ask you to complete a self-assessment tax return once a year¹⁴. The Non-resident Landlord Scheme sets out how that works.

Does rental income count towards my total income for tax?

Yes, and that is why the benefit rules matter as much as the tax rules. Rent counts as taxable income and can affect benefit payments¹². How much it affects them depends entirely on which benefit you receive, and the four systems do not agree with each other.

On Universal Credit, the position is generous. You will be able to keep in full all the rental income from sub-tenants or lodgers without it counted as income, but lodgers, boarders and sub-tenants will not be counted as being entitled to a room when working out your bedroom entitlement¹⁵. The rent you get from your lodger is not counted at all as income, unless you are renting to a family member⁵. The money for the room does not count as income⁷.

On Housing Benefit, the rules are older and more detailed. The first £20 per week of rent that you receive from the lodger will not be counted as income when your entitlement is being worked out⁵. If you also provide some meals to your lodger, only half of any rent they pay each week above £20 will be counted as income⁵. If you just rent the room and do not provide any meals, only the first £20 per week is disregarded and anything above £20 is treated as income⁵.

There is a further wrinkle for people on means-tested benefits such as income support, income-based JSA or income-related ESA. The first £20 per week of rent received is not counted as income³. If you provide meals, only half of the amount paid over £20 per week is counted³.

Letting a room to top up retirement income

A lodger can be a source of income later in life, but it is not invisible to the benefit system. Pension Credit counts as income when your contribution to residential care or nursing home fees is assessed¹². Rent counts as taxable income and can affect benefit payments¹². Anyone weighing up a lodger against their retirement income needs to check both.

The bedroom tax is the other moving part, and it works differently depending on your tenancy. If you are of working age and renting social housing, your eligible rent is reduced if you are considered to have one or more spare bedrooms¹⁶. That is the reduction commonly called the bedroom tax. If you take in a lodger to rent a spare room in a community landlord home, you will still be affected by the bedroom tax, though the rent received can be used to make up the bedroom tax deduction in your budget⁶.

Housing Benefit works the other way. If you get a lodger, the council does not make a bedroom tax deduction¹⁸. But some of the money counts as income, which can affect your other benefits⁷. So the same lodger can remove one deduction and create a different one.

There are exemptions worth knowing if a spare room is the issue. You may be able to keep one extra bedroom if you cannot share a bedroom with your partner because of your disability or theirs, claiming Attendance Allowance at the higher rate or the PIP daily living component¹⁹. You may also be able to keep one extra room if you, your partner, or your child needs overnight support from a carer¹⁹.

Making Tax Digital: the £30,000 threshold for landlords

Making Tax Digital for Income Tax changes how landlords and sole traders report income to HMRC, and the earnings threshold is falling. From April 2027, the earnings threshold will be lowered to £30,000⁸. It then falls again: the threshold is lowered to £20,000 in April 2028¹⁰. The £20,000 figure applies to sole traders and landlords with combined income from self-employment and property from April 2028²².

Below those thresholds, the ordinary Self Assessment rules apply. There are no rules on how you must keep records: you can keep them on paper, digitally or as part of a software program²³. That is the current position for anyone filing a return, and it means a lodger landlord below the threshold is not required to keep digital records for tax.

The threshold is based on gross income, not profit, so a landlord with rental income at or above the figure comes within Making Tax Digital regardless of costs. The Making Tax Digital for Income Tax page covers who must join and when, and there is a separate route for people who cannot use digital tools, covered under digital exclusion exemption from Making Tax Digital.

One further change affects landlords with finance costs. The tax relief landlords of residential properties get for finance costs is at the rate of 20 per cent, and it is the same for residential landlords across the UK²⁴. That is a flat-rate credit rather than a deduction from rental income, and it is separate from Rent a Room relief.

Where the relief stops and what protects you

Rent a Room relief is a tax relief, not a licence to let. Most mortgage agreements allow you to rent a room in your home, but consent from your lender is usually required³. If you have mortgage arrears, taking in a lodger can help your position, and the terms of any arrangement are worth checking with your lender first². If you rent your home rather than own it, your landlord's agreement is needed, and the rules on sub-occupation contracts set out what a lodger arrangement looks like in a community landlord home⁶.

If your lodger needs to claim benefits to help with their rent, they can usually get the shared accommodation rate of Local Housing Allowance². That is a lower rate than a self-contained tenancy would attract, and it is worth knowing before you agree terms.

The relief itself has a hard edge. It covers a furnished room in your own home where you live, up to £7,500 a year¹. Let part of your home out rather than take a lodger, and the Capital Gains Tax position on sale changes, because the exclusion for letting part of your home out does not include having a lodger⁸. The Private Residence Relief rules explain how that relief works on a home you sell.

For free, impartial help with tax and benefits, MoneyHelper and the tax charities offer guidance, and HMRC's own guidance on Income Tax sets out the rates and bands that apply to rental income once it is taxable. If a decision goes against you, HMRC's internal review and the tax tribunal are the routes to challenge it.