HMRC has increased the Rent a Room tax-free personal allowance, allowing some households to earn up to £7,500 annually in rental income without paying tax. This scheme applies when renting out a furnished room or part of your main home but excludes self-contained flats or annexes.
If you share the rental arrangement with someone else, each person can claim a £3,750 tax-free allowance. The scheme is also available to landlords running bed and breakfasts or guest houses, provided the business operates within the property where they live.
Both homeowners and tenants can benefit from this relief. Homeowners should check with their mortgage lender and home insurance provider to ensure renting a room is permitted. Tenants must obtain permission from their landlord before proceeding.
Rental income below £7,500 does not need to be reported to HMRC as it is automatically exempt from tax. However, if your income exceeds this threshold, you must file a self-assessment tax return and opt into the scheme to claim the tax relief. Income above the £7,500 allowance will be taxable.
HMRC states, “The tax exemption is automatic if you earn less than your threshold, so you do not need to take any action. If you earn more than the threshold, you must complete a tax return and opt into the scheme to claim your allowance. Alternatively, you can choose not to opt in and instead report your rental income and expenses in the property section of your tax return.”