Britain ignores your lodger. America wants a schedule for the spare room

Figures relate to tax year 2025-26 (UK) · 2025 (US)

The threshold is the whole point of the British scheme. Take in a lodger, keep the rent below it, and there is no form, no claim and no entry on a tax return.

That simplicity is local. America has no threshold for this, and it treats the arrangement as part of your home earning money, which brings a calculation you cannot opt out of. The rent a room exemption stops at the Atlantic.

Key takeaways

• The British scheme exempts lodger rent below an annual threshold.
• Nothing goes on a UK return while you stay under it.
• America has no equivalent threshold or exemption.
• Part of your home becomes a measured source of income there.
• Depreciation applies whether or not you claim it.
• A spouse letting the same room splits the exemption, not doubles it.
• No British tax paid means no foreign tax credit to claim.

What is the rent a room scheme?

It is a British relief letting you receive up to a set amount each year from a lodger in your own home without paying tax on it. According to HMRC guidance, the threshold is £7,500 a year, halved where two people share the income.

The lodger must live in your main home rather than a separate property.

Below the threshold most people never tell HMRC anything.

What if the rent exceeds the threshold?

Then Britain taxes the excess, or you can choose to work out the actual profit instead and pay on that. Whichever route you take, some British tax usually arises and becomes creditable.

Higher rents therefore simplify the American position slightly.

A credit is better than an exemption when two countries are involved.

Can two people share the exemption?

Yes, and the threshold halves when they do. A couple letting a room between them each receive half of the British allowance rather than the full amount each, which surprises people expecting double.

America splits the income according to who owns the property.

So the two systems divide the same money differently.

Does it matter if the lodger is a relative?

Britain allows the rent a room scheme where a genuine lodger arrangement exists, and a relative paying a market rent can qualify. America looks at whether the letting is run for profit rather than at the relationship.

Letting below market rate to family changes the American analysis.

Deductions can be restricted where the rent is not commercial.

Does a lodger affect your main home status?

In Britain, generally not, because the rent a room scheme exists precisely for people letting a room in the home they live in. The property stays your residence throughout the arrangement.

America looks at the proportion and the period of rental use.

That is where the later restriction on the sale comes from.

Does it affect your mortgage or insurance?

Possibly, and that is a separate question from tax. Many lenders and insurers want telling before you take a lodger, and failing to tell them can matter more than the tax ever will.

Check the terms before the lodger moves in.

Neither country cares, but your insurer might.

What if you only let for part of the year?

The British threshold is an annual figure rather than a monthly one, so a few months of letting usually sits comfortably inside it. America reports the actual income and apportions the costs across the period of the let.

Depreciation runs only for the months the room was available.

Keep a note of the start and end dates.

How does America see the same arrangement?

As rental income, from the first pound. There is no equivalent exemption, so the money goes on your return and you claim a share of your household costs against it in the ordinary way.

That does at least mean real deductions are available.

So the taxable profit is usually far smaller than the rent itself.

Is there any British tax to credit?

Not where the exemption covers you, which is the usual position. No British tax arises, so there is nothing to set against the American charge and the tax stands alone.

It is the same pattern as every tax-free British relief.

Our guide to the foreign tax credit explains why that matters.

What can you deduct?

A fair share of mortgage interest, council tax, utilities, insurance and repairs, apportioned by the space the lodger occupies or another reasonable method. Costs that relate only to the let area come off in full.

Keep the basis of your apportionment written down.

Photograph the room measurements once and keep them on file.

Most people use floor area, which is simple and easy to defend.

Why does depreciation matter?

Because America requires it whether or not you claim it. A share of the building cost is written off each year against the rental income, and the amount you were entitled to claim reduces your cost basis when you sell.

Failing to claim it does not protect you from that reduction.

Set the schedule up in the first year rather than reconstructing it.

So the sensible course is to claim it properly and track it.

A worked example

The figures below are illustrative and use round numbers to show the mechanics.

Tom is American and lets a room in his Bristol house for £600 a month, giving £7,200 a year. That sits inside the British threshold, so he tells HMRC nothing.

His American return shows roughly $9,000 of rental income. The lodger uses about a fifth of the house, so a fifth of his mortgage interest, utilities, council tax and insurance comes off.

After those deductions and the mandatory depreciation, his taxable profit is modest. The paperwork is the real cost rather than the tax.

The two treatments compared

How to handle it

1. Record the rent received each month, in sterling and in dollars.
2. Work out the share of the home the lodger occupies.
3. Gather the annual totals for interest, council tax, utilities and insurance.
4. Apportion those costs on a consistent and documented basis.
5. Calculate depreciation on the let share of the building value.
6. Report the income and deductions on the American rental schedule.
7. Keep a running record of depreciation claimed for the eventual sale.

Does it affect selling the house later?

It does, through two routes. The depreciation you were entitled to claim reduces your American cost basis, and the period of rental use can restrict the exclusion available on a main home.

Britain still gives full relief on your main residence in most cases.

So the gap between the two systems widens at the sale rather than closing.

What about short term lets?

Letting a room through a short stay platform can fall inside the British scheme where the lodger shares your home. America applies different rules to very short rentals, including a narrow exception for brief lets.

The number of days matters on the American side.

Our guide to UK holiday lets and US tax covers the whole property version.

What records should you keep?

Rent received by month, a plan or measurement showing the share of the house let, annual bills for the apportioned costs, and a depreciation schedule. Those four cover everything the American return needs.

Keep them for as long as you own the house.

The depreciation record matters most at the point of sale.

How much tax does this actually produce?

Usually very little, once the apportioned costs and the depreciation come off the rent. For many people the figure lands at a few hundred dollars, and sometimes the calculation produces a small loss instead.

The work is in the calculation rather than the payment.

That imbalance is what makes people skip it.

What happens to a loss?

Rental losses face their own American restrictions, and a loss on letting part of your own home is often limited rather than freely usable against your other income in the same year.

Any unused amount generally carries forward.

It can surface when you sell or when rental profits appear.

Does it change your estimated payments?

Rarely, because the amounts are small and no withholding is involved on either side. A single lodger on an ordinary rent will not move your position noticeably in most cases.

Several lodgers in a larger house might.

Our guide to estimated tax payments from the UK covers the thresholds.

Should you use the British exemption at all?

Almost always, because it costs nothing and removes a British filing. The only reason to decline it is where your actual costs exceed the rent and you want a British loss instead.

That mainly suits somebody with a large mortgage.

Run both figures before choosing in any year.

What if you move out and keep the lodger?

Then the British scheme stops, because the rent a room relief depends on the lodger sharing your main home. The whole arrangement becomes an ordinary letting with ordinary British tax on the profit.

America treats it as a normal rental from that point too.

At least the British tax then becomes creditable.

Does the lodger need to know any of this?

No, none of it. Nothing about your American filing affects them, and no information about them reaches the IRS through you at all. Their own tax position stays entirely separate from yours throughout.

You simply need the rent figures and the dates.

A simple written agreement makes that record easy.

How does the currency work?

Convert the rent received each month at a consistent rate, and do the same with the costs you apportion. An annual average is usually accepted for a steady monthly stream.

Depreciation runs from the dollar cost of the building.

Apply the same method every year without changing it.

That figure comes from when you bought, not from today.

Mistakes and penalties we see with rent a room

The first is assuming the British exemption means nothing to report. The American return needs it either way.

The second is skipping depreciation to keep things simple. It reduces your basis whether you claim it or not.

The third is apportioning costs loosely with no record of the method.

The fourth is forgetting the arrangement entirely at the point of sale, years later.

How US UK Tax Accountants helps

We work out the apportionment, set up the depreciation schedule properly, and report the income with the deductions it deserves. Then we keep the running record so the eventual sale is straightforward.

Where earlier years were missed, we check whether an amendment helps. Our US federal return service covers the filing.

If you have a lodger and an American passport, get in touch. The tax here is usually small, and the record you build now is what protects you at the sale.

Last reviewed 4 October 2026. This article is general information and not personal tax advice. Every letting turns on its own facts, so take advice on yours before filing.