Rent-a-Room Scheme: Earn £7,500 Tax-Free in 2025/26

The Accounted Tax Team·17 February 2026·7 min read

What Is the Rent-a-Room Scheme?

The Rent-a-Room scheme is a government tax break that lets you earn up to £7,500 per year tax-free from renting out furnished accommodation in your home. It applies whether you have a long-term lodger or take in short-term guests through platforms like Airbnb.

Your Accounted dashboard shows your real-time tax position

The scheme has been running since 1992 and is one of the simplest tax reliefs available. If your gross rental income from the room is £7,500 or less, you pay no tax on it and do not even need to report it on a tax return. If you earn more than £7,500, you have a choice about how to handle the tax.

How It Works

The Basics

You must rent out furnished accommodation in your main home — the property where you live. A separate flat you own down the road does not qualify, even if it is next door. The accommodation must be in the same building you occupy as your residence.

The £7,500 threshold is per property, not per person. If you jointly own your home with someone else (a spouse, partner, or housemate), you share the £7,500 allowance equally — £3,750 each. This is the case even if only one of you receives the rent.

What Counts as Income

The £7,500 limit applies to your gross income — the total rent you receive before any expenses. It includes:

Rent payments from a lodger
Payments from Airbnb, Booking.com, or similar platforms
Any additional charges for meals, laundry, or cleaning that you provide as part of the arrangement

Automatic or Opt-In?

The scheme applies automatically if your qualifying income is £7,500 or less. You do not need to do anything — no forms to fill in, no boxes to tick. You simply do not declare the income.

If your income exceeds £7,500, you need to decide between two options (explained below) and report accordingly on your self-assessment tax return.

What If You Earn More Than £7,500?

When your rental income goes above the threshold, you have two choices.

Option A: The Rent-a-Room Allowance Method

You deduct the £7,500 allowance from your total income and pay tax on the remainder.

Example: You earn £10,000 from Airbnb. You deduct £7,500 and pay tax on £2,500. If you are a basic rate taxpayer, that means £500 in tax.

With this method, you cannot deduct any actual expenses. The £7,500 replaces all expense deductions.

Option B: The Standard Method

You calculate your profit the normal way — total income minus actual expenses (cleaning costs, platform fees, laundry, wear and tear, a proportion of bills, etc.) — and pay tax on the profit.

Example: You earn £10,000 from Airbnb. Your actual expenses are £4,000. You pay tax on £6,000 profit. At the basic rate, that is £1,200.

In this example, Option A would be better because your taxable amount is only £2,500 versus £6,000.

Which Option Should You Choose?

It depends on how much you earn and how high your expenses are.

If your expenses are less than £7,500, the allowance method (Option A) is usually better.
If your expenses are more than £7,500, the standard method (Option B) saves you more tax.

You need to elect for the standard method if you want to use it. If you do not elect, the Rent-a-Room allowance method applies automatically once you start reporting the income. You make the election on your self-assessment tax return by the filing deadline (31 January following the end of the tax year).

Rent-a-Room and Airbnb

The Rent-a-Room scheme works perfectly with Airbnb and similar platforms, as long as you are renting out a room in your main home. Many people use it to let a spare bedroom to guests on weekends or during busy periods.

Key Points for Airbnb Hosts

The room must be in your main residence, not a separate property.
Income from Airbnb counts towards the £7,500 threshold, including cleaning fees you charge.
Airbnb service fees that are deducted before you receive payment are not part of your gross income — your gross income is what Airbnb pays you.
If you rent out your entire home while you are away on holiday, this still qualifies under Rent-a-Room as long as it is your main home.

Airbnb and the Trading Allowance

There is a separate £1,000 trading allowance for miscellaneous income. You cannot use both the Rent-a-Room allowance and the trading allowance on the same income. If your Airbnb income is from renting a room in your home, the Rent-a-Room scheme (£7,500) is almost always more beneficial.

Who Cannot Use the Scheme

There are some situations where Rent-a-Room does not apply:

Separate Self-Contained Flats

If you convert part of your home into a self-contained flat with its own entrance, kitchen, and bathroom, and rent it out, this does not qualify. The scheme requires furnished accommodation in your home, not an independent dwelling.

Non-Residential Use

If your lodger uses the room as an office rather than living accommodation, the scheme does not apply.

Properties You Do Not Live In

The property must be your main home. You cannot use Rent-a-Room for a buy-to-let property, a second home, or a holiday let — even if those properties have spare rooms.

Partnerships

If you run a property rental partnership, Rent-a-Room does not apply to the partnership income. It is only available to individuals renting out rooms in their own homes.

Interaction with Your Mortgage

Residential Mortgages

Most residential mortgage terms include a clause about not running a business from the property. Taking in a lodger usually falls outside this restriction, but it is worth checking your specific mortgage conditions. Many lenders are fine with it as long as you are still living in the property as your main home.

Consent to Let

If you are renting out a room regularly through Airbnb, some lenders may want to know about it. This is different from a full "consent to let" (which applies when you move out and rent the entire property). A quick call to your lender can clarify whether they have any concerns.

Insurance

Standard home insurance may not cover damage caused by a lodger or paying guest. Check your policy and consider specialist landlord or home-sharing insurance if needed. The cost of this insurance is an allowable expense if you choose the standard method of calculating your profit.

Interaction with Benefits and Tax Credits

Rent-a-Room income below £7,500 is ignored for income tax purposes, but it may still affect means-tested benefits and tax credits. If you receive Universal Credit, Housing Benefit, or Council Tax Support, the income could reduce your entitlement. Check with the relevant benefits authority before taking in a lodger.

Practical Tips

Get a Written Agreement

Even if Rent-a-Room income is tax-free, have a written agreement with your lodger covering rent amount, notice period, house rules, and deposit arrangements.

Keep Basic Records

Even though income below £7,500 does not need to be reported, keep a record of what you received and when. If HMRC ever queries your income, you can show you stayed within the threshold.

Track Your Income Through the Year

It is easy to lose track of how much you have earned, especially with variable Airbnb bookings. Accounted can help you monitor your room rental income in real time. Connect your bank account and Penny will flag when you are approaching the £7,500 threshold, so you can decide whether to stop letting or prepare to report the income.

Make the Most of It

The Rent-a-Room scheme is one of the most generous and underused tax reliefs available. If you have a spare room in your home, earning up to £7,500 tax-free is a straightforward way to boost your income. Whether you take in a long-term lodger or dip into short-term letting through Airbnb, the scheme makes it simple.

Try Accounted free for 30 days to track your room rental income alongside your other earnings. Penny will categorise your payments, keep your records tidy, and let you know exactly where you stand against the £7,500 threshold — all without touching a spreadsheet.

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