Skip to main content

News story

April 28, 2017

How to make money from home: rent a room

In 1992 the government introduced the Rent a Room Relief. This allows individuals to make a tax-free income for renting a furnished room in their residential home.

On 6 April 2016, the level of tax-free income increased to £7,500 per year from £4,250 per year. The relief can only be used to make money by renting a room in your main residential home. You cannot use it to make money in a second home, such as a holiday home in the UK.

How to claim the rent a room tax-free income

Since the threshold was increased, the additional tax-free income can be calculated to be around £144 per week. The tax relief is halved if a joint owner is also entitled to half the rental income.

The tax exemption is automatic if you are earning less than the limit. However, if you are charging more to rent a room, you must include this in your annual tax returns to claim the relief.

The relief can be calculated in one of two ways each year:

  1. You pay tax on your profit: gross income (rental income, monies charged for cleaning, laundry or other services supplied, e.g. gas and electric) less any expenses and capital allowances.
  2. You only pay tax on any income received over the threshold. If choosing this method, you cannot make any deductions for expenses and capital allowances.

You can change the way you want to calculate the tax each year to make it work for you. To do so, you will need to let HMRC know by 31 January following the end of the tax year. Similarly, you must let them know that if you no longer want to claim the relief if you are earning below the threshold.

You can also inform HMRC of a loss by using the first method. Any losses can be used against future rental income to reduce the tax liability in the following year.

Other things to consider

If you rent a room to more than two individuals, your home may be classed as a House in Multiple Occupation (HMO). You will need to contact your local authority to check whether you need to obtain an HMO licence.

If you are renting your own home, you should also check whether your lease allows you to sublet.

Your home insurance and mortgage terms should also be reviewed before renting a room.

Upcoming changes

Although no timescales have been given, the Chancellor, Philip Hammond, announced in the Spring 2017 Budget that the government is attempting to redesign this relief to allow residents to have longer-term lettings.

For more information, contact property solicitor Ben Marks today.

Note: This article is not legal advice; it provides information of general interest about current legal issues.

Stay in touch

Subscribe to our newsletter

Stay in touch

By completing your details and submitting this form you confirm you are happy for us to send you marketing communications and that you agree to our Website Privacy Policy and Legal Notice and to us using Mailchimp to process your data.


Sending

News/Insight

  • Can you make a WhatsApp will?
    Key legal requirements and future outlook.


    Read more
  • Supporting neurodiverse people in family law matters
    Understanding neurodiversity in the legal context.


    Read more
  • Supreme court ruling on referees’ employment status
    In PGMOL v HMRC, the Supreme Court considered whether professional referees were self-employed. The case has the potential for far-reaching implications across the employment world.


    Read more
  • Business First Magazine
    Read our expert insights on key workplace and corporate issues.


    Read more
  • Why is clear contract drafting important?
    How simple contract clauses can protect your business.


    Read more

What they say...

  • Ian, April 2025
    “Martin and his team at Barker Gillette acted for us in our purchase and sale of property. The chain was lengthy and elements of the work became complex. Martin was tenacious and resolved to answer our queries as they arose. He handled all aspe

  • Henry, April 2025
    “We have purchased flats before with 2 different solicitors who were unable to help us this time. Martin came highly recommended and are we glad. He was very professional in every way: knowledgeable, approachable, he has a friendly manner, very

  • Megan Purcell-Jones, April 2025
    “Charlotte was extremely diligent and thorough. She talked us through the process of making our wills and listened to and understood our needs and the complexities involved. Extremely patient and very clear.”

  • Hena, April 2025
    “Great experience, Patrick was very clear and gave time to explain the legal processes. Friendly and professional communication made me feel comfortable asking questions, received great legal advice.”

  • Michael Constable, April 2025
    “I wanted to revise my will and appoint RIAA Barker Gillette as my Executor and Trustees. This was handled very efficiently and professionally. It helped that I had agreed a fixed fee in advance.” Review left for: Herman Cheung

Read more
Send this to a friend