How to rent out a spare Rroom in the UK without paying extra tax

Renting out a spare room in your home can be a great way to earn extra income, especially with rising living costs in the UK. If you have a guest room or unused space, you could turn it into a source of money without taking on a full-time job.

The best part is that you may not even have to pay tax on the money you earn, thanks to the UK government’s Rent-a-Room scheme. Whether you own your home or are a tenant (with permission), this article will walk you through everything you need to know.

You’ll learn how the scheme works, how to prepare your room, where to find tenants, and what to avoid — all in simple steps.

How to rent out a spare room tax-free with the UK’s Rent-a-Room scheme

The Rent-a-Room scheme is a government programme that allows you to earn up to £7,500 per year tax-free from renting out a furnished room in your main home.

You don’t need to do anything special to join the scheme. If your income from renting the room stays below £7,500 in a year, it’s automatically tax-free — as long as the room is part of your main residence and is furnished.

If you earn more than the limit, you’ll need to declare it on your Self Assessment tax return and can choose to pay tax on the profit or on the income minus the £7,500 allowance.

To qualify:

• You must rent out a furnished room.
• It must be in your main home (not a second property).
• You can be a homeowner or a tenant (if your landlord allows subletting).

This scheme makes it easy to turn unused space into steady, legal income.

Steps to prepare your room and start renting

Before you invite someone into your home, it’s important to prepare the room and set up a few essentials.

1. Check legal and safety requirements
   You may need a smoke alarm, proper fire exits, and locks. Check your local council’s guidelines to ensure you meet housing standards.
2. Furnish the room
   At a minimum, include a bed, wardrobe, and desk or table. Cleanliness and comfort go a long way in attracting good tenants.
3. Set a fair rental price
   Research similar listings in your area on platforms like SpareRoom, OpenRent, or even Gumtree. Decide whether you’ll include bills in the rent.
4. Create house rules
   Set expectations early. For example: kitchen use, bathroom cleaning, noise limits, and guests.
5. Take clear photos and write a short description
   Good listings attract better tenants. Be honest about the space and what’s included.

With the room ready, you can start advertising and screening potential lodgers.

Pros and cons of renting out a spare room

Like any decision, it’s important to weigh the benefits against the responsibilities. But for many, the extra income and low barrier make it worth it.

Do you need to tell your mortgage lender or landlord?

Yes, in most cases, you must tell your mortgage provider or landlord before renting out a room.

• If you have a mortgage:
  Some lenders require written permission. Others may change your mortgage terms or ask for additional insurance.
• If you’re a tenant:
  You must get your landlord’s permission. Subletting without approval can lead to eviction.

It’s always better to check first than to deal with issues later. The same applies to housemates — make sure everyone is on board.

What about council tax, insurance and other costs?

Renting out a spare room can affect more than just your income. Before you start, it’s important to understand how things like council tax, insurance, and household bills might change. These aren’t reasons to avoid renting, but you should be prepared so there are no surprises.

Council tax changes

If you live alone, you may currently receive a 25% single person discount on your council tax. Once you rent out a room and someone else moves in, you will usually lose this discount, and your bill will go up.

However, if the person renting your room is a full-time student, you may still qualify for some discount. It’s a good idea to contact your local council to ask how your situation would be affected before you take on a lodger.

Insurance adjustments

Many people forget to tell their home insurance provider when they rent out a room — but this can be a big mistake. If you don’t inform your insurer and something happens (like a theft or damage), your claim could be rejected.

Let your insurance company know you’re taking in a lodger. They might increase your premium slightly or require you to adjust your policy. This is especially true if you have buildings and contents insurance or if your home is under a mortgage.

Utility and household costs

When someone else lives with you, your energy, water, and internet bills will likely go up. It’s important to decide early if you’ll include bills in the rent or ask your tenant to split the costs. Both ways are fine, as long as expectations are clear.

Other shared costs may include toilet paper, cleaning products, or heating. Many landlords include everything in one flat rate to keep it simple, while others prefer keeping things separate. Either way, communication helps avoid issues later.

How to find reliable tenants and avoid trouble

Finding the right person makes all the difference. Here are some tips:

• Use trusted platforms like SpareRoom or OpenRent.
• Ask for references — previous landlords or employers.
• Have a quick chat or coffee before agreeing. Trust your instincts.
• Always use a written agreement, even if informal. It protects both parties.

Watch out for red flags: people who avoid questions, seem rushed, or don’t have a stable source of income.

Can this be combined with other ways to make extra money?

Absolutely. Renting out a spare room is just one way to bring in extra cash.

You can also:

• Offer storage space in your garage or shed.
• Rent out your driveway for parking (especially near city centres or train stations).
• Try online micro-tasks or freelance jobs.

For more easy side income ideas, check this guide.

Combining different small income streams can make a big impact on your budget.

Common mistakes to avoid when renting out a spare room

Renting a room seems simple, but there are a few common traps:

• Not telling your insurer, lender, or landlord.
  This can cause legal or financial problems later.
• Forgetting to track income over £7,500.
  If you go over the tax-free limit, you must report it.
• No clear rules.
  Without agreements, small misunderstandings can turn into big conflicts.
• Not vetting tenants.
  A bad match can cause stress, unpaid rent, or damage.

Take your time and follow the steps — the process will go much smoother.

Useful resources and where to get help

For more detailed info and official guidelines, visit:

• GOV.UK Rent-a-Room scheme
  (explains limits, rules, and how to declare income)

Renting out a spare room is one of the easiest ways to earn extra money in the UK — especially with the Rent-a-Room scheme allowing up to £7,500 tax-free.

By preparing your space, knowing the rules, and choosing the right person, you can turn unused space into valuable income. It’s a low-risk, flexible way to improve your finances without needing to change your lifestyle.

Take that first step. Start small, stay informed, and use the resources available to make smart, secure choices.