What is the Rent-a-Room Scheme?
The Government's Rent-a-Room Scheme means anyone letting out a room in their home can earn £7,500 a year tax free. Wow! That's like having another mini Personal Tax Allowance!
If your top tax rate is 20%, that's the same as earning £9,375: If you pay 40% income tax, you'd have to earn £12,500 to take home the same.
If you earn more than £7,500 from your lodger, you'll need to declare it on a tax return. But stay under the threshold and you don't even have to inform HMRC.
You don't have to own your home, but you do need to live there. The space needs to be furnished. You can't deduct any costs relating to renting out the room from your income for tax purposes.
Some people choose not to use the Rent-a-Room scheme because they want to be able to deduct expenses from their income. If you want to do that, we suggest you look at the Government's Guidance.