Airbnb Hosts & Homeowners: Rent-a-Room Tax Exemption Explained (2025)

The Rent-a-Room Relief, or RARR, is a tax relief scheme that has been established within the United Kingdom. The relief scheme allows homeowners the unique opportunity to earn as much as £7,500 in tax-free income by renting a furnished room in their main home. This particular relief has proven highly useful for a great number of individuals who are seeking opportunities to generate extra income via short-term rental deals. These deals are typically akin to arrangements found on websites like Airbnb, which have been extremely popular over the last few years. Nevertheless, a note should be made that HM Revenue and Customs (HMRC) has proposed recent changes to this relief.

What is Changing in Rent-a-Room Relief?

Before, RARR was applicable to any rent paid for letting out a room in the taxpayer's residence, whether or not they were present in the house during the letting. From 6 April 2019, however, a condition was introduced:

• The Rent-a-Room Relief can only be relieved on the condition that the host occupies the property for a minimum duration during at least part of the period of letting.
• This is to mean that the relief provisions still hold for rentals which are carried out in a similar way to Airbnb-style accommodation. But the condition is that this is only if the homeowner does indeed occupy the property for at least some amount of time, even if only part of the time, while the tenant rents out the property.
• The relief is to ensure that benefits of RARR are also extended to the people who are actually sharing their own homes with others, rather than the large-scale short-term rental operators who are running large-scale businesses.

How Does This Impact Homeowners and Landlords in 2025?

As we head into 2025, it should be noted that the Rent-a-Room Relief scheme is yet to change. Nevertheless, homeowners should remain vigilant and stick to the guidelines that have been given and still remain in effect. Some of the significant implications that can be derived from this are:

1. Airbnb and Short-Term Letting

For these residents who are operating the business of renting out private rooms in their houses through sites like Airbnb and others of that sort, it is reassuring to know that the tax break continues to be available. However, there is one rider, in that they are required to retain their physical presence in the building for at least part of the rental term. If such home owners are inclined to let their entire house while they are abroad, then regretfully, they might not enjoy the tax-free allowance of £7,500.

2. Long-Term Room Rentals

For those who would rather rent out a room to a lodger for an extended time and continue living in the same premises, the specific rule does not really affect their situation. As long as they qualify under the needed requirements, they are still eligible for the tax-free allowance that is available to them.

3. Second Homes and Buy-to-Let Properties

Those who are involved in letting out second homes or in buying-to-let property are not entitled to RARR, or Rent a Room Relief, since the specific relief is only available for the taxpayer's primary residence. Thus, these people can end up having to pay income tax on any rent that they earn from their second home over the standard tax-free personal allowance that the government charges.

Recent HMRC Evaluations and Future of the Scheme

In December 2024, HM Revenue & Customs (HMRC) undertook an analysis of the Rent-a-Room Relief scheme to consider whether it is effective and having a positive effect on the housing market. The conclusions reiterated the necessity for keeping the rule in place which makes it compulsory for homeowners to reside on the property for the rental period in order to avoid large-scale exploitation.

Why Does This Rule Matter?

The modification was suggested to HMRC as part of a larger approach to prevent misuse of the Rent-a-Room Relief scheme. The broader reasons for maintaining these guidelines are summarized as follows:

• Preventing large scale tax avoidance: Some landlords were using RARR to avoid taxation on short-term lettings where they let their whole properties during their periods of abeyance.
• Promoting Traditional Lodging: The government desires to encourage long-term lodgers and authentic house-sharing arrangements rather than investment-led short-term lettings.
• Enhancing Subsidy on Affordable Homes: By becoming less tax-beneficial for short-term rental arrangements, the government aims to nudge home owners towards the long-term leasing alternative, in an effort to relax housing shortfalls in specific zones.

How to Maximize Rent-a-Room Relief Benefits in 2025?

Homeowners can still maximize their benefits by following these strategies:

1. Ensure You Remain in Your Home: If you employ Airbnb or short-term letting services, ensure that you are in the property at least during some part of the rental period to be eligible for the relief.
2. Look for long-term lodgers: Renting a room to someone for a long time period is more likely to be in compliance with the regulations and is assured income for rent.
3. Record Keeping: Document every source of rental income received, duration of tenancy, and every cost incurred.
4. Seek Advice from a Tax Expert: Discuss your situation with a chartered accountant to confirm that you are in full compliance with the regulations and maximize your tax savings.

 For expert tax advice on rental income and financial planning, check out our detailed guide on when you should hire a tax accountant.

Need Help Managing Your Tax Returns?

Comprehending changes in the legislation of taxes may not be easy, but you are not alone in doing that. Fair View Accountants provides services of an accounting profession in Watford and England to allow you to take control of your tax returns more effectively.

Why Choose Fair View Accountants?

• Professional chartered accountants specializing in rental income taxation.
• Tailored tax advisory services to optimize savings.
• Expertise in compliance with HMRC and financial planning for landlords & homeowners.

Conclusion:

The Rent-a-Room Relief scheme is a tax exemption which is advantageous to housing owners who wish to earn some extra cash by renting out furnished rooms. Even though the 2019 rules still hold for 2025, verification of compliance with the HMRC requirements would be necessary to avoid any tax liabilities. Renting out a room in your house for short periods can mean Airbnb; or turned into a lodger for long periods. Always keep yourself informed and seek expert opinion, and you can maximize your tax benefits with ease. 

Contact Fair View Accountants today for any personalized tax advice and financial planning.

Get a Free Consultation Today!

More people than ever before were eligible to claim Rent-a-Room Relief. Get in touch with Fair View Accountants for additional assistance. Simply fill out the desired form or call us now!

FAQs

Can I rent out multiple rooms under the Rent-a-Room Scheme?

Yes, but the tax-free threshold remains £7,500 total per year, regardless of how many rooms you rent out.

Does Rent-a-Room Relief apply if I rent out my entire home?

No, you have to inhabit the house in at least part of the time when the tenant is in occupation.

What if my rental income exceeds £7,500?

You would then need to declare it as an income exceeding that amount; either pay tax on that income as a profit or take off expenses which you can legally claim.

Can I claim Rent-a-Room Relief if I am a tenant subletting a room?

Yes, but only with the landlord's permission to sublet, and you would have to be a resident in the property.

Do I need to register with HMRC to claim Rent-a-Room Relief?

No requirements follow if the sum of your rental income does not exceed £7,500. If more than, the amount must be noted in the Self-Assessment tax return.

Does the scheme apply to short-term Airbnb rentals?

Yes, as long as you are present in the property during part of the rental period.

Can I use the Rent-a-Room Scheme if I run a Bed and Breakfast (B&B)?

Yes, provided you live in the property and the rooms are furnished.

Are there any local licensing requirements?

Some councils require a license for renting out rooms, particularly for short-term lets. Check with your local authority.

What expenses can I deduct if I opt out of the scheme?

You may deduct certain expenses, namely, mortgage interest, repairs to the property, and the utility costs incurred during the course of the annual rental period.

Where can I get professional tax advice?

You can contact Fair View Accountants for expert rental income tax guidance.