Rent a Room Scheme: What It is and How It Works

The Rent a Room scheme is available to homeowners or tenants in the UK who let a furnished room in their main home to a lodger.

You can earn up to £7,500 a year tax-free, or £3,750 if you share the income with someone else, like a partner or joint owner.

You don’t need to be a homeowner to benefit from the scheme. If you’re renting, you can also rent out a room to a lodger, as long as your tenancy agreement permits it.

1. Requirements and restrictions for using the Rent a Room Scheme
2. Pros and cons of the Rent a Room Scheme
3. Claiming benefits under the Rent a Room Scheme
4. How to advertise a spare room on OpenRent
5. Long or short-term contracts?

Requirements and restrictions for using the Rent a Room Scheme

There’s no limit on how many rooms you can rent out in your home. But there are some rules you need to follow to use this scheme.

You can use this scheme if:

• You rent out a furnished room to a lodger
• Your renting activities count as a business (like running a guest house or offering services like meals and cleaning)

You can’t use the scheme if the room or accommodation…

• is separate from your main home (like an annexe with its own kitchen and bathroom)
• isn’t furnished
• is used as an office or for business purposes
• is your UK home while you’re living abroad

Pros and cons of the Rent a Room Scheme

The main benefit of the scheme is that you can earn up to £7,500 a year without paying tax on it.

However, this might not be such a great deal for some, as you can’t claim any expenses related to renting out the room.

So, if you need to spend money on repairs or replacing things like a broken boiler, you won’t be able to deduct these costs if you’re using the Rent a Room scheme.

It’s important to keep track of your income and any expenses. Even though you can’t claim expenses with this scheme, you might need these records if you decide to opt out later.

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You might also be interested in…

• A Guide to Tax Deductible Costs for Your Landlord Tax Return
• When Will Section 21 Evictions Be Scrapped?
• How to Serve a Section 21 Notice to Tenants
• What’s a Good ROI for a Buy to Let Property in the UK?
• Tenant Fees Act 2019: A Guide for Landlords

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Claiming benefits under the Rent a Room Scheme

The Rent a Room scheme can be a great way to supplement your income but the income you get might affect some benefits.

Universal Credit: Any money you get from sub-tenants and lodgers under this scheme won’t be counted as income up to the tax-free allowance of £7,500.

Council Tax Reduction: If you were living alone and received the 25% single person Council Tax Reduction, you won’t qualify for this discount anymore if you decide to rent out a room.

Other benefits: If you’re getting other benefits such as Income Support or Pension Credit, any income you get from renting out your room could affect these benefits

How to advertise a spare room on OpenRent

With OpenRent you can rent a “Room in a Shared House” by selecting the “Room Only” option when creating your listing.

You’ll then need to fill in all the details for the room, such as the tenancy length, rental price, and property features. 

We have written a full guide on how to advertise a room in a shared house on OpenRent.

You may also wish to read our guide on how to create the best advert and find the most suitable tenant, as well as our advice on setting tenant preferences for lodgers.

Before you take a lodger in…

There are a couple of things you should check before taking in a lodger.

If you own your property and have a mortgage, you need to confirm with your mortgage lender that renting out a room is allowed under your mortgage terms.

Moreover, check with your home insurer to ensure that having a lodger is permitted under your policy.

If you’re renting, make sure your tenancy agreement allows for a lodger by speaking with your landlord.

Beyond the legal aspects, you might want to consider making some modifications to the property. 

For example, it might be a nice touch for the tenant to be able to lock their bedroom door and have their own key.

If it helps you feel more comfortable, consider also installing locks in private areas such as bathrooms and your own bedroom.

Long or short-term contracts?

Think about what contract length would work best for you. There’s no one-size-fits-all answer, as it depends on your situation.

If you do rent out a room in your house, you will require a type of tenancy contract known as a lodger agreement. You can read more about lodger agreements and your rights as a live-in landlord here.

For more information about renting out a room in your home, you can also read the government’s full guide here.

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