Guide to the rent a room scheme for resident landlords

If you’re a resident landlord, meaning that you let out part of your main home, you can use the rent a room scheme to earn income tax-free.

The rent a room limit is £7,500 and you have to be letting furnished accommodation. Here’s more about the scheme.

What is the rent a room scheme?

The rent a room scheme is for resident landlords who let out furnished accommodation. You’re a resident landlord if you let out part of your main home to a tenant or lodger.

Through the rent a room scheme 2021/22, you can earn £7,500 tax free (the limit has stayed at this level for several tax years). If you share this income with your partner or someone else, it reduces to £3,750.

You can also use the rent a room scheme if your letting activity is a trade, for example you run a guest house or bed and breakfast.

But if you use your home as an office or for any other type of business, you can’t use the scheme.

Resident landlord explained

There are important legal distinctions between resident landlord arrangements and other types of tenant contracts (like the assured shorthold tenancy).

For example, a resident landlord’s tenants have limited rights. They’re not able to challenge the agreed rent, plus you don’t need to give them as much notice to leave the property (as a breakdown in the relationship can lead to you being vulnerable in your own home).

Gov.uk’s guide to letting rooms in your home has more information.

How do I register for the rent a room scheme?

You don’t need to register if you want to use the scheme. If your gross receipts are less than £7,500, this will automatically be tax free.

HMRC says that your gross receipts for the tax year include:

• rental income (before expenses)

• any amounts you receive for meals, goods and services, such as cleaning or laundry

• any ‘balancing charges’ (these prevent you from claiming too much tax relief – essentially they’re the opposite of capital allowances)

If you’ve made a loss, it may be better for you to pay tax in the normal way (deducting expenses). You need to let HMRC know promptly that you want to do this.

If your gross receipts are more than £7,500, you can choose how to pay your tax:

• on your actual profit (your total receipts minus expenses and capital allowances)

• on your gross receipts over the £7,500 limit (you can’t claim expenses and capital allowances)

HMRC will automatically use the first option, so if you want to use the second one, you need to let them know.

It’s best to look at your situation carefully when working out which option to use. If you have considerable tax-deductible expenses, for example, you may pay less tax by choosing the first option.

Rent a room scheme and Self Assessment

If your rental income is less than £7,500, the rent a room scheme is applied automatically and you don’t need to complete a Self Assessment (unless you have other income that you need to report).

If your gross receipts are over £7,500, then you’ll need to do a landlord Self Assessment tax return. As mentioned above, there are two methods that you can use to calculate tax.

How to find a lodger for the rent a room scheme

If you’re a resident landlord, there are a few things to think about before taking in a tenant or lodger.

You might have to get your mortgage provider’s permission to take someone in. And if you’re a leaseholder, you might need to ask your own landlord first.

Your home should also be safe, with furniture and equipment that meets fire and electrical safety standards. Gas appliances need to be checked every year by a Gas Safe-registered engineer.

It’s your responsibility to check your tenant’s ‘right to rent’, which includes their immigration status. You can be fined if you let property to people who aren’t legally able to stay in the country. Find out more about checking right to rent.

Be sure to draw up a written agreement and ask your tenant or lodger to sign it, which makes sure that all parties are aware of their responsibilities. You might want to create an inventory of items in their room and log its condition, to avoid any disputes when they move out.

Here are some tips on how to find a tenant or lodger:

• people often advertise that they’re looking for a room on websites like Spareroom and Gumtree

• you can also check local newspaper adverts or community noticeboards (for example, ones in local shops)

• family, friends, or even people in your professional network may sometimes know someone who’s looking for accommodation

But remember to be safe first and foremost. Take sensible precautions when meeting up with a potential lodger or tenant and ask for references (including from their previous landlords). Our guide to choosing a tenant has further practical information.

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