Rent a Room Scheme and Airbnb Tax: What You Owe on a Spare Room

Does renting out a room count as taxable income?

Yes. Money a lodger pays you is income and is taxable in principle. The Rent a Room Scheme exists to remove most modest lettings from tax.

The scheme covers furnished accommodation in your only or main home. It applies to a single room, several rooms, or a whole floor. Owners and tenants both qualify. If you rent, check your agreement first, because your landlord has to agree before a lodger moves in.

Running a small bed and breakfast or guest house does not rule you out either. HMRC allows the scheme where the letting amounts to a trade, including where you provide meals or cleaning. That point is often missed, because the same guidance excludes accommodation used for a business.

How much can you earn tax free?

The limit stands at £7,500 for the 2025 to 2026 tax year. It reduces to £3,750 where someone else also receives income from letting accommodation in the same property, such as a joint owner. The limit does not change if you let for only part of the year.

The figure is measured against gross receipts, not profit. Gross receipts include the rent itself, plus anything the lodger pays for meals, cleaning, laundry or other goods and services, plus any balancing charges.

That distinction catches people out. Charging £600 a month rent plus £50 a month towards heating and broadband produces gross receipts of £7,800. The rent alone sits under the limit. The total does not.

If your gross receipts stay below the limit, you are automatically exempt. You do not need to register for Self Assessment, file a return for that income, or notify HMRC. Keep records anyway, because HMRC may ask you to show that the income was within the limit.

When you cannot use the Rent a Room Scheme

HMRC states that the scheme does not apply where the accommodation is:

• not part of your main home at the time you let it
• not furnished
• used as an office or for any business
• in your UK home and let while you live abroad

The business exclusion is narrower than it sounds. A lodger who works in your home in the evenings or at weekends does not break the rules, and nor does a student who is provided with study facilities.

The first exclusion matters most for short lets. If you go away and let the whole property, the accommodation is not part of your main home while it is let, so the scheme does not apply to that income.

What happens if you go over £7,500

Going over the limit does not remove the relief. It gives you a choice between two methods of working out the tax.

HMRC applies Method A automatically. If you want Method B, you must tell HMRC within one year of the 31 January following the end of the tax year. The same deadline applies if you want to stop using Method B and return to Method A. Method B also stops automatically if your receipts fall back below the limit.

The decision rule is simple. Method A subtracts your expenses. Method B subtracts £7,500. Whichever figure is larger produces the lower tax bill. So Method B wins whenever your allowable expenses come to less than £7,500, and Method A wins once they exceed it. The same comparison applies against £3,750 where the reduced limit applies.

Worked example

Sara lets a furnished room in her home for £650 a month and charges £30 a month towards bills. Her gross receipts for the year are £8,160. Her allowable expenses attributable to the letting come to £900.

• Method A taxes £7,260, which is £8,160 less £900.
• Method B taxes £660, which is £8,160 less £7,500.

Method B is clearly better for Sara, because her expenses of £900 fall well short of £7,500. She must tell HMRC that she wants to use it.

HMRC’s own example in helpsheet HS223 reverses the outcome. Chris takes £10,600 in receipts and has £9,000 of expenses. Method A leaves him taxed on £1,600. Method B leaves him taxed on £3,100. His expenses sit above £7,500, so Method A gives him the better result.

Why joint ownership changes the answer

Once two or more people receive letting income from the same property, the limit for each of them is £3,750, not £7,500.

Plenty of couples assume the £7,500 applies to each of them. They do not. Where only one of you actually receives the letting income, the full £7,500 applies to that person, so the position turns on the facts of who receives what rather than on who owns the property.

Airbnb and short lets: what changed in April 2025

The Furnished Holiday Lettings rules ceased to apply for Income Tax and Capital Gains Tax in tax years beginning on or after 6 April 2025, and from 1 April 2025 for Corporation Tax. HMRC confirms this in its Property Income Manual at PIM4185.

Short-term holiday letting is now taxed in the same way as any other property income. The old day-count tests decide nothing, because there is no separate regime left to qualify for.

The Rent a Room Scheme is unaffected by that change, and it is the relief that matters for most hosts letting a room. If you host on Airbnb by letting a room while you continue to live in the property, the scheme can still apply, because the accommodation remains part of your main home. If you let the whole property while you are away, it does not.

Where the scheme does not apply, the property allowance may. This is a separate exemption of up to £1,000 a year for individuals with income from land or property. If your annual gross property income is £1,000 or less, you do not have to tell HMRC or declare it on a return.

You cannot claim the property allowance on income from letting your own home under the Rent a Room Scheme. The two do not stack.

Do you need to file a tax return?

You must complete a tax return if your gross receipts from letting exceed the Rent a Room limit. That applies whether you use the scheme or not, because HMRC needs the figures either way.

You also need to tell HMRC if you want to opt out of the scheme in order to claim a loss. Under the automatic exemption, and under Method B, you cannot create a loss.

Where your letting falls outside the scheme, the property allowance sets the reporting point instead. Gross property income above £1,000 needs to be reported.

Making Tax Digital for Income Tax adds a further layer. The first wave started on 6 April 2026. It caught sole traders and landlords whose qualifying income topped £50,000 for the 2024 to 2025 tax year. Two more waves follow. From 6 April 2027 the trigger is qualifying income above £30,000, tested on the 2025 to 2026 return. From 6 April 2028 it drops again, to above £20,000 on the 2026 to 2027 return.

Qualifying income means everything you take from self-employment and property, counted before you deduct a penny of expenses. HMRC states that from September 2026 it will begin signing up people who need to use Making Tax Digital for the 2026 to 2027 tax year and have not signed themselves up.

How letting a room affects Capital Gains Tax when you sell

Selling your only or main home normally attracts full Private Residence Relief, so no Capital Gains Tax arises. Letting part of the home can restrict that relief, and the figures involved are usually far larger than the Income Tax at stake.

HMRC helpsheet HS283 draws the line at the number of lodgers. If you have a single lodger, the rooms the lodger occupies still qualify for Private Residence Relief. Nothing is lost.

If you have more than one lodger, or you let part or all of your home at any time during your period of ownership, the let parts may not qualify. Lettings relief may be available instead.

Lettings relief applies where part of the dwelling house was let as residential accommodation at the same time as another part was your only or main residence. It does not apply where the whole of the dwelling house was let for a period. That rules out the common pattern of letting the entire property on a short-let platform while you are elsewhere.

Where it does apply, the relief is the lowest of three figures:

1. the amount of Private Residence Relief already calculated
2. £40,000
3. the chargeable gain arising from the letting

The final nine months of your period of ownership always qualify for relief, whatever you do with the property in that time, provided the house has been your only or main residence at some point. That period extends to 36 months for a disabled person or a person resident in a care home who meets the conditions.

If Capital Gains Tax is due on a UK residential property disposal, you must report and pay within 60 days of the date of completion of the conveyance.

Beyond tax: three things to check first

Tax is not the only consideration, and the non-tax problems tend to arrive faster.

Check your mortgage terms, because many lenders require consent before you take in a lodger. Check your home insurance, because policies frequently exclude paying guests. Check your lease or tenancy agreement, and then check your local authority rules, because short-term letting is regulated differently across the four UK nations.

For England specifically, the UK government is introducing a mandatory national registration scheme for short-term lets, which GOV.UK states is expected to begin in 2026. Ring your council and check where things stand before you list a whole property.