Could the Rent a Room Scheme Increase Your UK Tax-Free Allowance to £20,070?
- TBA
- Aug 6
- 4 min read
For UK tax residents, the standard personal allowance is £12,570 per tax year. Income falling within this threshold is exempt from income tax, while any amount above it is taxed according to the relevant bands.
Typically, this personal allowance is fixed. However, in light of rising living costs and frozen tax thresholds, HMRC has recently promoted a practical tax-saving measure – the Rent a Room Scheme.
Under this scheme, if you live in a UK property and rent out a furnished room in your main home, you could effectively boost your tax-free income to £20,070 per year.
What is the Rent a Room scheme?
The Rent a Room Scheme allows resident landlords to earn up to £7,500 per year tax-free by letting out a furnished room in their main residence.
This amount is on top of the standard £12,570 personal allowance. If the room is jointly let (for example, with a spouse or partner), the exemption is halved to £3,750 per person.
You may qualify for the scheme if:
You are renting out part of your main residence
The room is furnished
The tenant could be a student, lodger or part-time worker
You operate a bed and breakfast or guesthouse
You live in the property (you do not need to own it)
The scheme does not apply in the following circumstances:
The property has been converted into self-contained flats
The room is unfurnished
The space is used as an office or for business purposes
The property is not your main home
You live overseas and rent out a property in the UK
How to apply for the Rent a Room Scheme
If your rental income does not exceed £7,500 per year (around £625 per month), the tax exemption applies automatically and you do not need to file a tax return.
If your rental income is higher, you must report it through Self Assessment and elect to use the Rent a Room relief.
Alternatively, you may choose not to join the scheme and instead declare your rental income and deductible expenses in the usual way. This may be preferable if you incur a loss, as the loss can potentially be offset against other rental profits.
Example
Ms W owns a house in London and rents out a furnished bedroom to a student at £600 per month. This brings in £7,200 annually – under the Rent a Room threshold – so she does not need to pay tax or file a return for it. Combined with the £12,570 personal allowance, she effectively receives £19,770 tax-free. If she also earns a small amount of income (up to £300), she may still not be required to pay tax.
Other key tax reliefs for landlords in 2025/26
In addition to the Rent a Room Scheme, landlords may also benefit from the following tax reliefs for the 2025/26 tax year (starting 6 April 2025):
Property Income Allowance
If your total rental income is under £1,000 for the year, you can use this allowance instead of declaring expenses. If income exceeds this amount, you must use the standard method.
Allowable Expenses
You can deduct expenses that are wholly and exclusively incurred for the rental, including:
Repairs and maintenance
Insurance
Letting agent fees
Legal and professional services
Replacement Domestic Items Relief
This allows you to deduct the cost of replacing everyday household items such as furniture or appliances with like-for-like or equivalent-quality items. Upgrades are not eligible.
We have previously published guidance on Making Tax Digital for landlords and on claiming relief for property maintenance. You can refer to earlier articles for more details.
Some advice from TB Accountants
The UK is currently experiencing what is known as ‘fiscal drag’, where inflation and frozen thresholds result in more taxpayers being pushed into higher tax bands.
Against this backdrop, the Rent a Room Scheme is a simple and legitimate way to reduce your tax bill.
If you have a spare room in your home, consider turning that unused space into a tax-free source of income.
We also recommend staying up to date on any changes for the 2025/26 tax year, especially relating to Stamp Duty and Capital Gains Tax (CGT).
If you are planning to buy a new property or sell a rental one, it is important to understand the latest rules and avoid unexpected costs.
Why TB Accountants?
Professional Assurance: Our team includes ACA members and ACCA-certified professionals, delivering services to the highest industry standards.
Responsive Service: We respond to your inquiries within 24 hours, ensuring efficient communication across time zones.
Multilingual Support: Services available in English, Mandarin, Cantonese, Japanese, French, German, Spanish, Italian, Turkish, and more.
Trusted by Clients Worldwide: Consistently praised by global clients for proactive, professional, and reliable accounting and tax support.
For individuals and businesses looking for UK taxation services, use our contact form to get in touch for more information.
Get in touch with us at info@tbagroup.uk or for a free one-to-one consultation.