Rent a room exemption fails to keep up with rising rent costs

Since 1992, taxpayers have been able claim an Income Tax exemption known as rent-a-room relief where they receive rental income from a lodger in their main home.

Where gross rental income before expenses is below the rent-a-room limit (currently £7,500), the income is not taxable. This limit is halved to £3,750 where someone else also receives a share of the income, such as a couple owning a joint property renting out a spare room to a lodger. 

If a taxpayer receives gross rental income from renting out a room which is above £7,500, they can choose to be taxed on the excess instead of deducting actual expenses.

What’s the issue? 

The rent-a-room threshold has been at the current £7,500 since it was last increased in 2016.  During this time, the average UK property rental increased by 45%. Had the rent-a-room threshold increased in line with inflation, it would be around £10,500 by the start of the 2026/27 tax year. 

Why it matters 

By not increasing the exemption limit, this could discourage taxpayers from renting out rooms in their main home and reduce the supply of spare rooms available to lodgers. This could make it difficult for those who are unable to afford to rent a full property themselves to secure affordable housing. In areas of higher rental costs, such as London and other large cities, this could impact the available properties for those on lower incomes.

Price Index of Private Rents, UK: monthly price statistics - Office for National Statistics