UK homeowners can legally earn up to £20,070 a year without paying income tax by combining the standard personal HMRC tax-free allowance with the Government’s Rent a Room scheme.
It matters because many could benefit from extra income at a time of rising living costs and frozen tax thresholds. This affects working adults, landlords in primary homes, couples, and anyone considering renting out spare space.
What is the HMRC Tax Free Allowance and Rent a Room Scheme?
The HMRC tax free allowance refers to the amount of income an individual can earn before paying income tax. For the 2025/26 tax year, this personal allowance is £12,570.
On top of that, the Rent a Room scheme allows homeowners to earn up to £7,500 a year tax-free by letting a furnished room in their main home. Combined, this can let a homeowner earn £20,070 without paying income tax.
- Personal allowance: £12,570
- Rent a Room allowance: £7,500
- Total potential tax-free income: £20,070
This tax relief applies only to individuals living in the UK with a main home where the rented room is located.
How Does the Rent a Room Scheme Work?
Q: Who can use the Rent a Room scheme?
You can use it if:
- You’re a UK tax resident homeowner or tenant.
- You let a furnished room in your main residence.
- The income is from renting living space within your primary home (not a separate investment property).
Q: How much can I earn tax-free from renting a room?
You can earn up to £7,500 per year tax-free. If you share rental income with a partner or joint homeowner, the tax-free limit is split to £3,750 each.
Q: Do I have to tell HMRC about this income?
Yes. Even if the rent you receive is below £7,500 and no tax is due, you must declare it on a Self Assessment tax return unless HMRC has specifically agreed you don’t need to file one.
“The Rent a Room scheme offers a straightforward way for homeowners to supplement their income without immediate tax liability, but accurate reporting is vital.” UK Tax Adviser.
Why Does This Matter Now?
Frozen Income Tax Thresholds
The UK Government has extended a freeze on income tax bands until 2031. This means:
- The £12,570 personal allowance stays fixed.
- The basic rate threshold (£50,270) also doesn’t increase with inflation.
- As wages rise, more people move into higher tax brackets without a real increase in spending power, a process economists call fiscal drag.
| Tax Band | Income Range (2025/26) | Tax Rate |
|---|---|---|
| Personal Allowance | Up to £12,570 | 0% |
| Basic Rate | £12,571–£50,270 | 20% |
| Higher Rate | £50,271–£125,140 | 40% |
| Additional Rate | Above £125,140 | 45% |
This freeze can increase the effective tax bills for households even when pay rises are modest.
Case Study: Jane, London
Jane, 45, works full-time and earns £28,000 a year. After paying income tax and National Insurance, she decides to let a spare furnished room in her home in Hackney.
- Rent received: £7,200/year
- Personal allowance used: £12,570
- Combined tax-free income: £19,770
Because Jane’s rent is below the £7,500 limit, she pays no additional tax on the rental income. She still submits a Self Assessment return and records the Rent a Room income, but her total tax bill stays lower than it otherwise would be.
Are There Conditions or Limits I Should Know?
Yes. Important details include:
- The scheme applies only to your main home; second homes and buy-to-let properties don’t qualify.
- You must provide a furnished room, unfurnished space doesn’t count.
- Any insurance, mortgage, lease, or planning restrictions may still apply.
- You can choose to opt out of the scheme if it’s financially better to claim actual expenses instead.
Important: Renting rooms on platforms like Airbnb or short-term lets is usually fine under the scheme, again, provided the room is in your main residence.
What does this mean for the UK Public?
For many UK households facing inflation and stretched budgets, combining the HMRC personal allowance with the Rent a Room scheme offers a legal and accessible way to boost income.
With tax thresholds frozen, smart use of allowances like this can help reduce marginal tax burdens and improve household finances.
