Over 1.8 million UK adults rent out furnished rooms in their home allowing them to qualify for up to £7,500 in tax free income under the rent a room scheme

In total £170m was claimed in the tax relief in 2023-23 showed HMRC figures, but the number of rent of room landlords using the scheme are relatively small, with only one in 10 room renters submitting claims in the last year.

The average rental income was only £3,580, well below the £7,500 threshold, with only 10% exceeding this figure in the last 12 months.

In total, 6% of UK households rent out a room, equivalent to around 1.8m homes across the UK where the owner acts as a rent a room landlord, from a total of 30.1m dwellings across the country.

The latest HMRC research carried out by Ipsos investigated the prevalence of the rent a room landlord population, and their use of the tax relief, which lets individuals earn up to £7,500 per year tax free from letting out furnished accommodation in their home. 

Those taking advantage of the scheme tended to be more affluent with 27% of these landlords being higher or additional rate income taxpayers, versus 12% of all UK adults.

Around two-fifths (41%) of landlords renting out a room had heard of the rent a room scheme, while a third (34%) knew about the £7,500 tax-exempt limit specifically. 

Around half of them had accommodated no more than one tenant at any one time in the past 12 months. A further quarter (26%) had hosted two tenants, while less than one in four (23%) had hosted three or more tenants. 

Students were the most likely to rent a room in someone’s house, while nearly half of renters had specifically charged rent, or a charge for bills or services, to their children, or other family members. Only 11% rented to strangers.

Compared to the wider adult population, rent a room landlords were more concentrated in urban locations with 84% based in towns and cities, with over half (53%) living in the south of England.

Interestingly, the scheme was barely used by people over the age of 65, with only 13% of this cohort using the tax relief.

One in five either owned more than one property or spent time living in more than one property, pointing towards the affluence of the claimants, and perhaps indicative of overall awareness of the scheme.

Mean rental incomes were higher in London (£6,300), among those who advertised on online homestay platforms (£8,240) and owned more than one property (£5,990). 

When homeowners rent out rooms, there are a number of tax issues to consider.

Rickie Lowery CTA, tax adviser at Croner-i said: ‘The relief is up to £7,500 per annum and can be applied not only to rents received, but also to amounts received for related costs such as meals, cleaning and laundry.

‘This means it can be used not only by an individual letting out part of their home, but also potentially where a bed and breakfast is being operated.

‘The conditions for relief are that the taxpayer must occupy the property throughout along with the tenant and the let room must be furnished, part of the taxpayer’s home and used by the tenant for residential purposes.

‘Where multiple people are entitled to the rental income, each person receives 50% of this allowance; this remains the case even where more than two people are involved.’

Where such income exceeds the threshold, the taxpayer will be liable on their actual income and expenses by default (method A), but they can instead elect to pay tax on the excess of their income over the rent a room relief threshold (method B).

Once made, the election will remain in place until either the taxpayer’s rent a room income drops below the threshold, or where the taxpayer informs HMRC that they wish to be taxed under method A.

The taxpayer is free to change between methods year to year as required. An election to change methods must be made in writing, either by letter or via the tax return, and must be made within one year of 31 January following the tax year.

Note that this relief cannot create a loss, therefore where actual expenses exceed income received, the taxpayer will generally be better off opting to use method A.

The IPSOS survey also found that 12% of landlords said that the tax-exempt threshold should be raised, and this response was often linked to people mentioning the cost of living, high inflation, or high energy prices.

The way people are charged for rooms also varied, with 3% charging rent to the people living with them, 3% charging for contributions to bills and other services, and under 1% ran a bed and breakfast.

In total, Office for National Statistics figures showed that there were 30.14m dwellings in the UK in 2022-23 made up of 25.4m in England, 1.47m in Wales, 2.68m in Scotland and 829,000 in Northern Ireland.

The Ipsos survey covered a sample of 10,391 UK adults aged 16 and over, and a sample of 1,051 rent a room landlords specifically.