When you let a spare room to a lodger, you are not only creating some extra income for yourself, but you are also increasing the availability of low cost accommodation. This is why the Government allows up to £7,500 of the gross rent you receive per year to be tax free under rent-a-room relief.
That tax relief can also cover bed-and-breakfast arrangements, such as letting rooms by the night through sites such as Airbnb.com. However, in all cases, the letting must be of furnished residential accommodation in your own home.
To be clear: you must live in the same property as the let room or rooms during the tax year, but you don’t have to own that property. The relief can apply to rent received when you let the whole house for a short period, say, while you are temporarily away on holiday, as long as you don’t establish another permanent home while you are away.
Rent-a-room relief can’t apply to income you get from holiday lettings where you don’t also occupy part of the same property. Similarly, it can’t apply to income from a buy-to-let which is not occupied by the landlord.
You don’t have to notify HMRC that you are claiming the relief if the gross rents received in the year to 5 April don’t exceed £7,500. If the gross rents exceed that figure you must choose whether to be taxed on the excess above £7,500, or on the actual profits from the letting, which are the gross rents less any allowable expenses.