Most homeowners are sitting on more spare capacity than they realise. A spare room, an unused driveway, a half-empty garage or loft all have a value, and HMRC offers two genuinely tax-free allowances that let you turn that space into income without it touching your tax bill. Used sensibly, they can cover a meaningful slice of a mortgage or offset the rising cost of running a home, and for the right setup you need to do very little paperwork at all.

The key is understanding where the tax-free line sits, because crossing it changes your obligations entirely. Below are the main routes, what each allowance covers, and the point at which you need to start telling HMRC.

Renting a room to a lodger

The most substantial relief is the Rent a Room scheme. For the 2026 to 2027 tax year it lets you earn up to £7,500 tax-free from letting a furnished room in your main home to a lodger, someone who lives alongside you rather than holding their own self-contained space. If you own the home jointly, you each receive the full allowance, so a couple can earn up to £15,000 combined before any tax arises.

A lodger is a fundamentally different arrangement from a tenancy, with its own rules on agreements, notice, and the checks you need to carry out, which is why anyone taking in a lodger under the Rent a Room scheme should get the practical side right before advertising the room. Two points catch people out. The £7,500 figure is gross income, so utility contributions and any charge for meals count towards it, not just the rent. And the threshold is measured before expenses, so a room let at £650 a month produces £7,800 of gross income and tips you over the line even if your actual costs leave little profit.

Renting out a driveway or parking space

If you live somewhere parking is scarce, near a station, a hospital, a stadium or a town centre, an empty driveway can earn a steady income with almost no effort. This sits outside the Rent a Room scheme, but it is usually covered instead by the £1,000 property allowance, which lets you receive up to £1,000 of property income a year tax-free.

For many homeowners a driveway brings in less than that ceiling, which means the income is tax-free and needs no reporting. Several online platforms handle the bookings and payments, so the arrangement can run largely on its own once it is set up.

Letting out storage space

The same £1,000 property allowance can cover income from letting out storage, a dry garage, a secure shed, or loft space for someone storing belongings. Demand is steady in areas where homes are small and self-storage is expensive, and the income is modest but reliable. Because it draws on the same allowance as the driveway, you need to count both together against the single £1,000 limit rather than treating them separately.

Knowing when the tax-free line is crossed

The allowances are generous, but they are not a licence to ignore HMRC once your income grows. If your gross lodger income exceeds £7,500, or your combined property income exceeds £1,000, you move into taxable territory and need to act.

In practice that means notifying HMRC and completing a Self Assessment return. The deadline to register is 5 October following the end of the tax year in which you first crossed the threshold. At that point you also gain a choice: you can claim the relevant allowance and pay tax only on income above it, or you can declare your full income and deduct your actual expenses instead, whichever leaves you better off. The two allowances cannot be combined against the same income, and if you claim an allowance you cannot also deduct expenses on that income, so it is worth running the numbers both ways.

One further point matters if you are already a landlord. Making Tax Digital for Income Tax began rolling out from April 2026, and lodger or property income can combine with existing rental income to push you over the reporting threshold. Keeping a simple digital record of what comes in and goes out through the year turns what could be a stressful year-end into a routine task.

Make the space work without the worry

The appeal of these routes is that the tax treatment is settled and, within the limits, genuinely nil. A lodger, a let driveway, or some rented storage can each add up to a few thousand pounds a year, and for many homeowners the combination quietly covers a real share of the cost of owning a home. The discipline is simply to know your gross figures, watch the two thresholds, and keep enough of a record that you can prove your position if you are ever asked. Get that right and the income is yours to keep.