Letting Part of Your Home: UK Tax Rules for 2026/27

Letting part of your home can provide useful additional income, but the tax treatment depends on what you let, whether the accommodation is furnished, whether the property is your main home and how much income you receive.

For many resident landlords, the Rent a Room Scheme provides the simplest treatment. It can allow up to £7,500 of qualifying gross receipts each tax year to be exempt from Income Tax. However, Rent-a-Room is not always available and, where expenses are substantial, using the normal property income rules may sometimes produce a better tax result.

Homeowners and tenants considering renting part of their house should therefore understand both systems rather than assuming all income from a lodger is automatically tax-free.

How Is Letting Part of Your Home Taxed?

Income received from letting residential accommodation can normally be taxable. However, special rules apply where furnished accommodation is provided within your only or main residence.

Under Rent-a-Room relief, qualifying gross receipts of up to £7,500 can normally be exempt from Income Tax.

The scheme can apply to owner-occupiers and tenants. A tenant should nevertheless check whether their tenancy agreement permits them to take in a lodger. Homeowners should also consider mortgage and insurance conditions before letting accommodation.

Renting a Room of Your House Under Rent-a-Room

The Rent a Room Scheme applies to income from providing furnished residential accommodation in your only or main residence. Reviewing the wider Rent a Room Scheme guidance in London can help homeowners understand how the relief applies to different types of furnished accommodation.

A straightforward example is taking in a lodger who occupies a furnished spare bedroom while sharing facilities such as the kitchen and bathroom.

However, the relief is broader than traditional lodger arrangements. It can potentially apply where the letting activity amounts to a trade, including certain bed-and-breakfast or guest house businesses operated from the individual’s main home.

Short-term accommodation is not automatically excluded either. The length of the letting is not itself the determining factor, so occasional qualifying short-term letting of part of a main home may potentially fall within the rules.

What Is the Rent-a-Room Allowance for 2026/27?

The Rent-a-Room exemption limit is £7,500.

Where another person also receives income from letting accommodation in the same residence, the individual’s limit is generally reduced to £3,750. This commonly affects couples or joint owners who both receive the letting income. The wider rules for sharing rental income from jointly owned property in London should also be considered where more than one person has an interest in the property.

The allowance is not increased or reduced simply because the qualifying accommodation is let for less than a full tax year. HMRC also requires qualifying receipts from the same residence to be considered together when checking the threshold.

What Income Counts Towards the £7,500 Limit?

The threshold applies to gross receipts rather than profit.

You therefore need to consider the money received before deducting expenses.

Gross receipts can include:

• Rent paid by the lodger or guest.
• Amounts charged for meals.
• Cleaning charges.
• Laundry charges.
• Other goods or services connected with the accommodation.

For example, if you receive £7,000 in rent and another £800 for meals and cleaning, your relevant gross receipts are £7,800 rather than £7,000.

What Happens if Your Income Is Below £7,500?

Where qualifying gross receipts are no more than your applicable Rent-a-Room limit, the income is normally exempt automatically.

This means that if you are entitled to the full £7,500 limit and receive £6,500 from qualifying furnished accommodation, you will normally have no Income Tax to pay on those receipts under Rent-a-Room.

However, you cannot use the exemption and also deduct the actual costs of providing that accommodation. Understanding how Rent a Room tax relief in London works can help determine whether using the exemption or the normal property income rules is more appropriate.

This can matter where expenses are unusually high or the letting makes a loss. In those circumstances, opting out of the automatic exemption and calculating the result under the normal rules may be worth considering.

What if Your Income Exceeds £7,500?

Receiving more than £7,500 does not automatically mean the whole amount becomes taxable. Where part of the rental income is taxable, understanding the applicable property income tax rates in London can help homeowners assess the wider tax cost of the letting.

There are two possible calculations.

Method A: Calculate Your Actual Profit

Under the normal method, you calculate taxable profit using your receipts less allowable expenses and any other deductions permitted under the normal tax rules.

This is HMRC’s default method where receipts exceed the Rent-a-Room threshold.

Method B: Use the Rent-a-Room Alternative

You can instead elect to calculate the taxable amount by deducting your Rent-a-Room limit from gross receipts.

For example, if your qualifying receipts are £11,000 and your exemption limit is £7,500, the alternative calculation produces taxable income of £3,500.

You cannot deduct your actual expenses as well when using Method B.

What Expenses Can You Claim When Renting Part of Your House?

If you use the normal property income calculation rather than the Rent-a-Room alternative method, allowable costs connected with the letting may be deductible subject to the ordinary property business rules.

Potential expenses can include an appropriate business proportion of costs such as:

• Repairs and maintenance.
• Heating and electricity.
• Insurance.
• Certain cleaning costs.
• Other expenses incurred for the purposes of the property business.

Where an expense relates partly to your own private occupation and partly to the letting, only an identifiable business proportion should normally be deducted. HMRC accepts an appropriate proportion where an identifiable part of an expense is incurred wholly and exclusively for the property business.

You should therefore avoid claiming an entire household bill simply because a lodger also benefits from the service.

When Does Rent-a-Room Not Apply?

Not every arrangement involving renting part of your house qualifies. Understanding the Rent a Room rules for London homeowners can help identify whether the accommodation and letting arrangement meet the conditions for the scheme.

Rent-a-Room generally cannot be used where the accommodation is:

• Not part of your only or main home when it is let.
• Unfurnished.
• Let as office or business accommodation rather than residential accommodation.
• In your UK home but let while you are living abroad in circumstances excluded by the rules.

The scheme is intended for furnished residential accommodation. HMRC specifically rejects Rent-a-Room claims where rooms in private homes are let as office accommodation.

Can You Let the Whole of Your Home?

The Rent-a-Room rules are primarily concerned with furnished accommodation in your only or main residence, and shared occupancy is an important part of the current framework.

Simply owning a property that was previously your home does not allow you to use the scheme indefinitely after moving elsewhere and letting it as an ordinary rental property.

Where you move out and the property becomes a conventional investment property, the rental income should normally be considered under the ordinary property income rules rather than assuming the £7,500 Rent-a-Room exemption continues.

The effect of renting your home can therefore change when your occupation of the property changes.

What About a Self-Contained Area Within Your Home?

Creating a degree of separation within a property does not automatically prevent Rent-a-Room relief.

HMRC’s legislation and guidance recognise that a building designed for permanent use as a single residence can, in some circumstances, remain a single residence where it has been temporarily divided into separate residential areas.

However, the facts matter. If alterations effectively create a separate permanent residence, the tax position can become more complicated.

Anyone substantially converting part of their home into an independent dwelling should therefore review the position rather than assuming the resulting income automatically qualifies for Rent-a-Room.

Joint Owners and Couples

If another person also receives income from letting accommodation in the same residence, the Rent-a-Room limit is generally £3,750 per person rather than £7,500 each.

For example, if a couple jointly receive £7,000 from a lodger, each person’s share would need to be considered against their applicable £3,750 Rent-a-Room limit.

The reduced threshold applies because another person is receiving letting income from the same residence.

Accurate records should show who receives the income and how it is divided. Where ownership and entitlement to income differ, understanding beneficial ownership of property in London can help establish each person’s underlying interest in the property.

Can You Use the £1,000 Property Allowance as Well?

The property allowance is separate from Rent-a-Room relief, but the two should not simply be added together. Understanding the property income allowance rules in London can help clarify when the £1,000 allowance is available and when Rent-a-Room takes precedence.

A Rent-a-Room property business where the relevant conditions are satisfied is generally excluded from the definition of a relevant property business for the property allowance.

You should therefore not assume that letting part of your home gives you an £8,500 tax-free threshold by combining £7,500 of Rent-a-Room relief with the £1,000 property allowance.

Does Letting Part of Your Home Affect Capital Gains Tax?

Renting accommodation within your home can also be relevant when the property is eventually sold.

Private Residence Relief can normally protect gains relating to periods when a property has been your only or main residence, but the detailed Capital Gains Tax treatment depends on how the property has been occupied and used.

Taking in a lodger while continuing to occupy the property is not necessarily treated in the same way as moving out and letting a separate part of the property.

Where a significant part of a home is converted for exclusive rental or business use, or occupation arrangements change substantially, the potential CGT consequences should be reviewed separately rather than assuming Rent-a-Room relief determines the CGT treatment.

Rent-a-Room and Making Tax Digital in 2026/27

Making Tax Digital for Income Tax begins from 6 April 2026 for qualifying individuals with total qualifying income above £50,000, subject to the detailed eligibility rules.

Property income can form part of qualifying income for MTD purposes.

HMRC’s current MTD guidance specifically provides for Rent-a-Room relief within the digital reporting process. Where someone within MTD records Rent-a-Room income digitally, the relief can be applied when the relevant annual adjustment is made.

Receiving less than £7,500 from a lodger does not, by itself, determine whether someone is within or outside MTD. Their wider qualifying self-employment and property income position needs to be considered.

Records to Keep When Letting Part of Your Home

Even where the income is fully covered by Rent-a-Room relief, retaining clear records can help demonstrate how the exemption was calculated.

Useful records include:

• Rental or lodger agreements.
• Bank records showing rent received.
• Details of additional charges for meals or services.
• Records showing how income is divided between joint recipients.
• Receipts and invoices where actual expenses are being claimed.
• Calculations supporting the business proportion of shared household costs.

If receipts exceed the Rent-a-Room threshold, these records also make it easier to compare Method A with Method B before deciding which produces the more appropriate tax result.

Common Tax Mistakes When Letting Part of Your Home

• Assuming the £7,500 threshold applies separately to every joint owner.
• Checking net profit rather than gross receipts against the threshold.
• Ignoring income received for meals, cleaning or laundry.
• Claiming household expenses while also using the Rent-a-Room alternative calculation.
• Adding the £1,000 property allowance to the £7,500 Rent-a-Room exemption.
• Assuming short-term letting automatically falls outside the scheme.
• Using Rent-a-Room for a property that is no longer the individual’s main home.
• Claiming relief for accommodation used as an office rather than residential accommodation.
• Failing to reconsider the tax position after substantially changing how part of the property is used.

Reviewing the Tax Effect of Renting Your Home

Letting part of your home can be relatively straightforward where you continue living in the property, provide furnished residential accommodation and your qualifying receipts remain within the Rent-a-Room limit.

For 2026/27, qualifying individuals can receive up to £7,500 under the scheme, reduced to £3,750 where another person receives letting income from the same residence.

If income exceeds the applicable threshold, you should compare the normal property profit calculation with the alternative Rent-a-Room method rather than assuming one will automatically produce the lowest tax liability.

The wider effect of renting your home should also be considered where you change your occupation of the property, create substantially separate accommodation or have other property or self-employment income that could affect your tax and Making Tax Digital obligations. Wider personal tax advice for landlords in London can help ensure rental income is considered alongside your other taxable income and reporting responsibilities.

Keeping clear records from the start makes it easier to establish whether Rent-a-Room applies, calculate any taxable income correctly and support the figures if HMRC later asks how the letting was treated.

Disclaimer: This article provides general information about renting a room of your house and UK taxation based on legislation and HMRC guidance available for 2026/27. The tax treatment depends on the nature of the accommodation, ownership, occupation and individual circumstances.

Case Study: Reviewing the Tax Position After Letting Part of a Home

Daniel approached our Wimbledon office after converting a spare area of his main home into furnished accommodation for a lodger. He expected to receive around £9,500 a year from rent and additional services, putting his gross receipts above the £7,500 Rent-a-Room limit. He wanted to know whether Rent-a-Room could still be used and how much of the income would actually be taxable.

Cigma Accounting reviewed the arrangement and confirmed that the accommodation remained part of Daniel’s main residence and was being provided as furnished residential accommodation. We then compared the two available calculations: using the Rent-a-Room alternative method or calculating his actual property profit after allowable expenses.

Because Daniel had incurred costs relating to repairs, utilities, insurance and cleaning, we reviewed which expenses could potentially be attributed to the letting. This allowed him to compare the normal property income calculation with the Rent-a-Room alternative rather than assuming that deducting £7,500 would automatically give the best result.

Our review also covered Daniel’s Self Assessment and personal tax position, together with whether his wider property and self-employment income could bring him within Making Tax Digital for Income Tax. We advised him on keeping separate records of rent, additional service charges and the appropriate proportion of shared household expenses.

Daniel was then able to continue letting part of his home with a clearer understanding of his taxable income, reporting responsibilities and the records needed to support his chosen tax treatment.