Advanced Taxation (UK) · Income tax: property and investment income

Rent-a-Room Relief and Furnished Holiday Lettings Explained

Updated 11 October 2026 · Fact-checked

Rent-a-room relief exempts gross receipts of up to £7,500 a year from letting furnished rooms in your own home. If receipts are higher, you either pay tax on the excess over £7,500 or elect to be taxed on actual profit instead. Letting income is normally taxed as property business income.

Understand Rent-a-Room Relief and Furnished Holiday Lettings

Most letting income is taxed as property business income: receipts less allowable expenses, taxed at your normal income tax rates. Rent-a-room relief is a special exemption that overrides this for a narrow situation.

Rent-a-room relief applies where you let furnished accommodation in your own main home. The test is based on gross receipts, not profit. The limit in the tax tables is £7,500 for the tax year. If your gross receipts are £7,500 or less, they are fully exempt automatically. You do not need to claim it, and you cannot deduct any expenses.

If gross receipts exceed £7,500, you have two ways to compute the taxable amount. Under the default method, you are taxed on gross receipts less £7,500, with no expenses deducted. Under the alternative method, you elect to ignore the relief and be taxed on normal property profit: receipts less actual expenses. Choose whichever gives the lower taxable figure. The election is made by the taxpayer and can be made or withdrawn each year. If the property is let jointly, the limit is shared between the owners.

The other side of this topic is furnished holiday lettings (FHL). Be careful here. The tax tables you are given do not set out FHL rules, and you should take your FHL knowledge from your ATX-UK study material and the Finance Act 2025 position. Check carefully whether a question treats the property as an FHL or as an ordinary let. If the question does not tell you, treat the property as ordinary property business income and state your assumption.

Key contrast to remember: rent-a-room is about letting part of your own home and uses gross receipts. Ordinary property business income is about profit. Always ask which regime applies before you calculate anything.

Key rules to remember

Rent-a-room limit: Exempt gross receipts ≤ £7,500 per tax year; Figure from the ATX-UK tax tables. Receipts at or below the limit are exempt automatically.
Default method where receipts exceed the limit: Taxable amount = Gross receipts − £7,500; No expenses are deductible under this method.
Alternative method (election): Taxable amount = Gross receipts − Actual allowable expenses; Taxpayer elects out of the relief. Choose it when expenses exceed £7,500.
Choosing between methods: Elect if actual expenses > £7,500; Where expenses are below £7,500 the default method gives the lower taxable amount.
Normal property income tax rates: Basic 20%, higher 40%, additional 45%; Property income is non-savings, non-dividend income taxed at the normal rates.

How to solve Rent-a-Room Relief and Furnished Holiday Lettings questions

Use this method for any question on letting income, whether a lodger, a spare room or a holiday property.

1Identify the type of letting. Is it a room in the taxpayer's own main home, or a separate property?
2If it is a room in the home, find the gross receipts for the tax year, including any charges for meals or services provided to the lodger.
3Compare gross receipts with £7,500, halving the limit if it is shared jointly with another person.
4If receipts are £7,500 or less, state that the income is fully exempt and no expenses are relief-eligible.
5If receipts exceed £7,500, compute both methods: gross receipts less £7,500, and gross receipts less actual expenses.
6Choose the method with the lower taxable figure and state that an election is needed if the alternative method is chosen.
7Add the taxable amount to the income tax computation as property income and apply the right rates.
8For other lettings, compute property business profit and state any assumption you made about the type of letting.

Quickest way: Compare expenses with £7,500

When to use it: Use when a question gives gross receipts above £7,500 and asks which method is better.

Check receipts exceed £7,500.
Total the actual allowable expenses.
If expenses are above £7,500, elect for the alternative method.
If expenses are £7,500 or less, take the default relief.
Write the taxable amount and one sentence on why you chose that method.

Common mistakes in Rent-a-Room Relief and Furnished Holiday Lettings

Deducting expenses as well as the £7,500 under the default method.
Students are used to deducting expenses in every property computation.
Fix: Remember the default method is gross receipts less £7,500 only. Expenses are only used under the alternative method.
Applying the £7,500 limit to profit rather than gross receipts.
Other reliefs are tested on profit, so students assume the same here.
Fix: Always start with gross receipts, including payments for services such as meals or laundry.
Forgetting that the relief is automatic below the limit and the election is only needed for the alternative method.
Students think any relief needs a claim.
Fix: Say receipts up to £7,500 are exempt automatically. The election is only to opt out in favour of actual profit.
Using the full £7,500 where two people share the letting.
The sharing rule is easy to miss in the scenario wording.
Fix: Check whether the home is owned or let jointly and split the limit between the owners.
Treating all letting as rent-a-room, including a separate rental flat.
Students match on the word letting rather than the facts.
Fix: Rent-a-room needs furnished accommodation in the taxpayer's own home. A separate property is property business income.

Worked examples

Example 1

Priya lets a furnished room in her main home to a lodger for the tax year. Gross receipts are £9,800 and her actual expenses are £1,900. Which method gives the lower taxable amount, and what is the taxable figure?

Show the solution

Receipts of £9,800 exceed the £7,500 limit, so compare both methods.
Default method: £9,800 − £7,500 = £2,300.
Alternative method: £9,800 − £1,900 = £7,900.
The default method gives the lower figure.

Answer: Priya should use the default rent-a-room method and no election is needed. Her taxable property income is £2,300.

Example 2

Tom lets a furnished room in his home for the tax year. Gross receipts are £12,000. Allowable expenses are £8,400. He is a higher rate taxpayer. Which method is better, and what is the tax on the letting income?

Show the solution

Receipts of £12,000 exceed £7,500.
Default method: £12,000 − £7,500 = £4,500.
Alternative method: £12,000 − £8,400 = £3,600.
The alternative method gives the lower taxable amount, so Tom should elect.
Tax at 40% on £3,600 = £1,440.

Answer: Tom should elect for the alternative method. Taxable property income is £3,600 and the income tax is £1,440.

Exam tips

Read for whether the letting is in the taxpayer's own home. That decides if rent-a-room is even relevant.
Show both method calculations and then state which one you choose. Marks are for the comparison.
Take the £7,500 limit from the tax tables. Do not rely on memory for any figure.
If a question mentions a holiday let, state clearly whether you are treating it as an FHL or as ordinary property income, and give your reason.
Link the result into the income tax computation and apply the tax rates from the tables.

Practice questions from Income tax: property and investment income

Rent-a-Room Relief and Furnished Holiday Lettings in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

ACCA Applied SkillsRent-a-Room Relief and Furnished Holiday Lettings

Rent-a-Room Relief and Furnished Holiday Lettings: frequently asked questions

What is the rent-a-room relief limit?

The limit in the ATX-UK tax tables is £7,500 for the tax year. Gross receipts up to this amount from letting furnished accommodation in your own home are exempt. If the limit is shared between joint owners, each gets a share.

How does the alternative method election work?

If gross receipts exceed £7,500, you can elect to be taxed on actual receipts less actual expenses instead of receipts less £7,500. It pays to elect when your actual expenses are above £7,500. Otherwise the default method is better.

What is the difference between rent-a-room and property business income?

Rent-a-room relief is an exemption based on gross receipts for letting furnished space in your own home. Property business income is taxed on profit, being receipts less allowable expenses. A separate let property is always in the second category.

Do I claim rent-a-room relief?

Not if receipts are £7,500 or less, as the exemption applies automatically. Where receipts are higher, the default method also applies without a claim. You only make an election if you want the alternative method.