Use the property allowance to make tax free income
If you own a property and let out a room (or rooms) in your home, you might be sitting on a valuable tax break that could put thousands of pounds back in your pocket. The Rent a Room Relief scheme, often called the property allowance, is one of the most generous reliefs HMRC offers to landlords. Yet many people either don’t know about it or don’t claim it. In this post, we’ll explain how it works and how you can use it to generate tax-free income.
What is Rent a Room Relief?
Rent a Room Relief is a relief from income tax that allows you to let out furnished accommodation in your home and receive rental income without paying tax on the first £7,125 per tax year (2024/25). This threshold is genuinely generous—it means you can earn that amount completely tax-free, no income tax return required.
The scheme applies if you’re a resident of the UK and let out furnished accommodation in your main residence. It’s designed to help individuals make money from spare rooms without getting caught up in complex tax paperwork. In practice, this means you could let out a bedroom, a studio, or even a self-contained annex, and the first £7,125 of rental income is yours to keep without paying a penny in tax.
Who can claim it?
The eligibility criteria are straightforward but worth understanding properly. You must:
- Be a UK resident and occupy the property as your main residence
- Let out furnished accommodation (not unfurnished)
- Claim the relief within four years of the end of the relevant tax year
The property must be your main home. You can’t use this relief for buy-to-let properties, holiday lets, or properties you don’t live in yourself. The furnished requirement is important too—soft furnishings like carpets and curtains count, but you need more than just basic fixtures and fittings.
If you’re jointly letting a room with a spouse or civil partner, the relief applies to both of you separately. That means a couple could potentially claim £14,250 between them in the 2024/25 tax year.
How does it work in practice?
If your rental income falls below £7,125, you don’t need to register for self-assessment or file a tax return at all. You simply keep the money and say nothing to HMRC—as far as tax is concerned, you’ve earned nothing.
If you earn more than £7,125 from letting rooms, you must register for self-assessment and file a tax return. However, you’ll only pay income tax on the amount above the £7,125 threshold. So if you let a room for £10,000 per year, only £2,875 is taxable.
There’s also an important decision to make if you have other rental income. You can choose to claim Rent a Room Relief or use the normal property allowance—but you can’t claim both on the same property. Most people find Rent a Room Relief more generous, but in some circumstances, the normal allowance (£1,000 per year) might be better. This is worth discussing with an accountant if you’re in this position.
What about expenses?
One thing to bear in mind: if you claim Rent a Room Relief, you can’t deduct expenses against your rental income in the normal way. You can’t offset mortgage interest, council tax, utilities, or repairs. The £7,125 is simply a fixed relief that applies regardless of your actual costs. This means the relief works best if your income is below or only slightly above the threshold.
If your income significantly exceeds £7,125, it’s worth calculating whether claiming the relief or using the normal property allowance and claiming expenses would leave you better off.
Getting it right
The key is declaring your rental income correctly on your self-assessment return if required, and making sure you claim the relief. HMRC won’t automatically give it to you—you need to claim it.
If you’re uncertain about your position or wondering whether you’re eligible, now’s the time to get advice. Getting it right from the start saves hassle (and potential penalties) down the line.
For tailored advice, contact Severn Accounting—we’re here to help.