Letting a Furnished Room? How the £7,500 Rent-a-Room Relief Works in 2026/27

Taking in a lodger can be a practical way to cover bills, but it also creates a tax question. The good news is that the UK has a dedicated relief for letting furnished accommodation in your main home. For 2026/27, rent-a-room relief can exempt up to £7,500 of gross receipts. If the limit is shared between two or more people, it is £3,750 each.

The relief is not a deduction or an allowance in the usual sense. It is a tax exemption for qualifying receipts. If your gross receipts are within the limit and you have no other reason to complete a tax return, you generally do not need to declare the income. If receipts exceed the limit, you can use the relief and pay tax on the excess, or choose to calculate your actual profit instead.

Who can claim rent-a-room relief?

The relief is available to an individual who lets furnished accommodation in their only or main home. You must live in the property as your main home. The accommodation can be a single room, several rooms or part of the home, provided the arrangement is residential rather than a business letting.

The tenant must use the accommodation as a home. The relief is not designed for letting a room to a company for storage, for example, or for a property that is not your main home. If you rent your home and sublet a room, check your tenancy agreement and get the landlord's permission where required. The tax relief may still be available, but the legal position needs to be sound.

'Furnished' means the room has enough furniture for normal living. A bed, wardrobe, chest of drawers and perhaps a desk are typical. An empty room does not qualify. If you provide meals, cleaning or laundry, the payments for those services normally count towards the £7,500 limit. If you provide substantial services, the activity may look more like a trade, so keep the arrangement simple and take advice if it becomes hotel-like.

How the £7,500 limit works

The limit applies to gross receipts, not profit. Rent, payments for meals and any other amounts received for the furnished accommodation all count. A deposit is not rent while it is held as security, but if you keep part of it to cover damage or unpaid rent, treat that carefully.

If your gross receipts are £7,500 or less, the qualifying income is exempt. If they are more, the relief means you pay tax on the excess over £7,500. You do not deduct expenses as well. The relief and the actual-expenses method are alternatives.

Where two or more people share the income, the limit is normally £3,750 each. This can apply to a couple who jointly let a room, or to friends who share a home and both receive rent. The exact split depends on the facts, so records of who received what are essential.

Relief or actual expenses?

The right choice depends on the numbers. Relief is usually best when expenses are low or moderate. The actual-expenses method can be better when allowable expenses are high. Under the actual method, you pay tax on rental receipts less allowable expenses. Those expenses must relate to the letting and be apportioned where they cover the whole home.

Example 1: modest rent, modest costs

You let a furnished room for £6,000 in 2026/27 and spend £1,200 on allowable expenses such as a share of utilities, cleaning and repairs. Under rent-a-room relief, taxable income is £0 because receipts are below £7,500. Under the actual method, profit is £4,800. Relief is clearly better.

Example 2: rent above the limit

You receive £9,000 and have £1,500 of allowable expenses. Under relief, taxable income is £1,500 (£9,000 minus £7,500). Under the actual method, profit is £7,500. Relief is better.

Example 3: high expenses

You receive £20,000 and have £14,000 of allowable expenses. Under relief, taxable income is £12,500. Under the actual method, profit is £6,000. The actual method is better, even though it means more record-keeping.

For the actual method, remember that residential mortgage interest is not generally deducted in full. It is usually given as a basic-rate tax credit. Factor that into the comparison. Capital costs, such as replacing a kitchen or extending the home, are not allowable revenue expenses. Repairs and maintenance may be deductible depending on the work.

Records to keep

Keep a simple rent record showing dates, amounts received and who paid. Keep evidence that the room was furnished and that the property was your main home. If you use the relief and receipts exceed £7,500, keep enough detail to calculate the excess. If you choose actual expenses, keep invoices, receipts and a note of how shared costs were apportioned.

If you already complete Self Assessment, report the rental income in the property section. The 2026/27 return is due by 31 January 2028. If tax is due, payments on account may follow. If you are not already in Self Assessment and your receipts are within the limit, you may not need to register, but check the position if you have other income or if the limit is shared.

Rent-a-room relief is generous, but it rewards tidy records. A lodger can be a sensible financial arrangement; the tax side stays simple when you know which limit applies, what counts as furnished accommodation and whether the relief or actual expenses gives the lower bill.