The Rent a Room scheme explained

The Rent a Room scheme is an HMRC incentive that allows UK homeowners and tenants to earn up to £7,500 per year tax-free by letting furnished accommodation in their home. The threshold was set at £7,500 in 2016 and has remained there since.

If you earn less than £7,500 from letting a room in a year, you do not need to do anything — there is no tax to pay and you do not even need to declare it on a tax return if you are not already submitting one.

To use the scheme you must: let furnished accommodation in your only or main home; be a resident landlord who lives there too; and let to a lodger, not a tenant with exclusive possession.

You can use the scheme whether you own the property or rent it yourself, though if you rent you should check your tenancy allows subletting.

The £7,500 limit applies to your gross receipts — the rent you receive before any expenses. If you share the letting with a partner who also owns the home, the threshold is halved to £3,750 each.

If your rental income exceeds £7,500 in a tax year, you have two options: pay tax only on the excess above £7,500 with no need to itemise expenses; or opt out of the scheme and calculate your actual profit after allowable expenses. Option two may benefit you if you have significant expenses.

If your income is below £7,500, the exemption applies automatically — you do not need to claim. You only need to tell HMRC if your gross income exceeds £7,500, or if you are already completing a Self Assessment return for other reasons.

If you do need to complete a return, use the Rent a Room section on your Self Assessment form.

Can I use the scheme and claim expenses? Not at the same time. Under the scheme you pay tax only on income above £7,500 with no deductions. If you want to claim expenses, opt out.

Does letting a room affect my mortgage? Possibly. Most residential mortgages permit a lodger, but not all — check your terms or speak to your lender.

Does it affect council tax? No.