Tax implications of letting a room in your home

The Rent a Room scheme lets individuals earn up to £7,500 tax-free each year from letting furnished accommodation in their own home (whether owned or rented). If more than one person receives the income, each can claim £3,750 tax-free, so the total exemption can exceed £7,500.

If your rental income is below the threshold, you don’t need to report it to HMRC. If it exceeds the threshold, you must file a tax return and can choose between two methods:

1. Scheme method – deduct the £7,500 allowance instead of actual costs.
   Example: £8,000 income – £7,500 allowance = £500 taxable profit, compared with £7,300 if actual costs (£700) were deducted.

2. Actual costs method – better if your expenses are higher than the allowance.

If your income is below the threshold but you’ve made a loss, filing a tax return may still be beneficial to preserve it.