Rent a Room Relief
Quick answer
A scheme letting you earn up to £7,500 a year tax-free from letting a furnished room in your own home. The threshold halves to £3,750 if someone else (for example a partner) also receives income from the same letting. It applies to resident landlords with a lodger, not to a separate buy-to-let property.
At a glance
- Tax-free
- £7,500/year (£3,750 if shared)
- Scope
- Furnished room in your own home / lodger
Full guide
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Open full guideWhy Rent a Room Relief matters for landlords
Rent a Room is the most generous everyday tax break in residential letting, but it is easy to misapply. It only covers a room in the home you actually live in, so it does not apply to a whole property let out or to a home you have moved out of. If your rent-a-room income exceeds £7,500 you can either pay tax on the excess above the threshold or on the profit after actual expenses, whichever is lower. A lodger under this scheme is an excluded occupier, not an assured tenant, so the Renters’ Rights Act possession rules do not apply.
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Official sources
LetCompliance editorial reviews this entry every quarter against the sources above. Always confirm specific duties with a qualified solicitor or your local council.
Related terms
BTL (Buy-to-Let)
A mortgage product and business model where a property is purchased specifically to rent out. Buy-to-let landlords are subject to Section 24 of the Finance Act 2015, which replaced mortgage interest relief with a 20% tax credit. Stamp duty is higher on a second property.
Capital Gains Tax (CGT)
Tax on the profit from selling a rental property. From April 2024 the CGT annual exempt amount was reduced to £3,000 and residential property gains are taxed at 18% (basic rate) or 24% (higher rate). A CGT return must be filed and tax paid within 60 days of completion.
Inheritance Tax (IHT)
A tax on the value of an estate on death, charged at 40% above the tax-free threshold. Rental property counts in the estate at its market value less any outstanding mortgage. The nil-rate band is £325,000, with a further residence nil-rate band potentially available when a main home passes to direct descendants.
Let Property Campaign
An HMRC disclosure facility that lets UK residential landlords come forward voluntarily about undeclared rental income from earlier years. In return for disclosing before HMRC opens an enquiry, landlords self-assess a reduced penalty: as low as 0% where there is a reasonable excuse, typically around 10–20% for an unprompted careless disclosure, rising toward 100% of the tax for deliberate concealment that HMRC discovers first. After registering an intention to disclose, the landlord has 90 days to calculate and pay the tax, interest and penalty.
Mortgage Interest Tax Credit (Section 24)
The 20% basic-rate tax credit that replaced full mortgage interest deduction for individual UK landlords under section 24 of the Finance (No.2) Act 2015. From 6 April 2020, finance costs (mortgage interest, loan interest, mortgage broker fees) are no longer deductible from rental profits; instead HMRC gives a tax reducer at the basic rate, capped at the lower of finance costs, property profits or adjusted total income after personal allowance. Higher- and additional-rate taxpayers are materially worse off than pre-2017; Limited Company landlords are unaffected because Ltd interest remains a fully deductible business expense.
Property Income Allowance
A £1,000 tax-free allowance for gross property income. If your total rental income in a tax year is £1,000 or less you usually do not need to declare it. If it is more, you can either deduct the £1,000 allowance instead of your actual expenses, or claim actual expenses — whichever gives the lower tax — but not both.