Rent a Room Relief and MTD

Rent a Room Relief Under Making Tax Digital: Do You Need to Report?

Last updated: February 2026

If you take in a lodger or rent out a furnished room in your home, you may qualify for Rent a Room relief — a tax exemption that lets you earn up to £7,500 per year from residential lettings without paying tax on it. But what happens when Making Tax Digital for Income Tax arrives in April 2026? Does lodger income count towards qualifying income? Do you need MTD-compatible software to report it? The answers depend on how much you earn, whether you claim the relief, and whether you have other property or self-employment income alongside it.

What is Rent a Room relief?

Rent a Room relief is an optional tax exemption that applies when you let out a furnished room (or rooms) in your main home. It covers income from lodgers, bed and breakfast guests, and short-term lettings through platforms such as Airbnb, provided the property is your primary residence.

The key features are:

• Tax-free threshold: £7,500 per tax year (or £3,750 if you share the income with another person, such as a spouse or partner who jointly owns the property)
• Automatic application: if your gross receipts from the letting are £7,500 or below, the relief applies automatically. You do not need to claim it.
• Optional for higher income: if your gross receipts exceed £7,500, you can choose between claiming Rent a Room relief (paying tax only on the amount above £7,500, with no expense deductions) or reporting full income and deducting actual expenses in the normal way.
• Main home only: the relief does not apply to buy-to-let properties, holiday lets, or any property that is not your primary residence.

Rent a Room relief has existed since 1992. The threshold was increased from £4,250 to £7,500 in April 2016 and has remained at that level since.

How qualifying income works under MTD

To understand whether Rent a Room relief affects your MTD obligations, you first need to understand how HMRC calculates qualifying income. Under Making Tax Digital for Income Tax, qualifying income is the combined gross income from:

• Self-employment (sole trader turnover)
• UK property income (rental receipts)

This is total turnover — not profit after expenses. The MTD thresholds are:

The critical question for anyone claiming Rent a Room relief is: does that lodger income count towards qualifying income?

Rent a Room relief and the qualifying income calculation

Where Rent a Room relief applies and your gross lodger receipts are £7,500 or below, HMRC treats that income as fully exempt. It does not appear on your Self Assessment return as property income, and it does not count towards the qualifying income threshold for MTD. You have no reporting obligation under MTD for that income alone.

Where your gross lodger receipts exceed £7,500 and you elect to use Rent a Room relief, the position is different. You are reporting property income (the excess above £7,500), and that excess forms part of your qualifying income calculation. Whether it brings you into MTD depends on whether your total qualifying income exceeds the relevant threshold.

Where you choose not to claim Rent a Room relief — because deducting actual expenses gives a better result — your full gross lodger income counts as property income and feeds into the qualifying income total.

Summary of how lodger income is treated

Worked example 1: lodger income only, under £7,500

Sarah lives in her own home in Stockport and rents a furnished spare room to a lodger. The lodger pays £500 per month, giving Sarah gross annual receipts of £6,000. She has no other self-employment or property income.

Because her gross receipts are below £7,500, Rent a Room relief applies automatically. The £6,000 is fully exempt from income tax and does not count as qualifying income for MTD purposes. Sarah does not need to:

• Register for MTD for Income Tax
• Purchase or use MTD-compatible software
• Submit quarterly updates to HMRC
• Include the lodger income on a Self Assessment return (provided she has no other reason to file)

Even when the Phase 3 threshold of £20,000 takes effect from 6 April 2028, Sarah remains outside MTD. Her qualifying income is £0, not £6,000, because Rent a Room relief exempts the entire amount.

Worked example 2: lodger income plus buy-to-let rental

James lives in Manchester and rents a spare room to a lodger for £600 per month (£7,200 per year). He also owns a buy-to-let flat in Salford that generates gross rental income of £14,400 per year. James has no self-employment income.

First, the lodger income. Gross receipts of £7,200 fall below the £7,500 Rent a Room threshold, so the relief applies automatically. This £7,200 does not count as qualifying income.

Second, the buy-to-let income. The Salford flat is not James’s main home, so Rent a Room relief cannot apply to it. The full £14,400 gross rental income counts as qualifying income.

James’s total qualifying income is therefore £14,400 (not £21,600). Under Phase 1 (April 2026, threshold above £50,000) and Phase 2 (April 2027, threshold above £30,000), James is outside MTD. When Phase 3 arrives on 6 April 2028, the threshold drops to £20,000 or more. James’s qualifying income of £14,400 still falls below this, so he remains outside MTD even at Phase 3.

Now suppose the buy-to-let produces £28,000 gross rental income instead. James’s qualifying income is £28,000 (the lodger income is still exempt). He is outside Phase 1 but enters MTD at Phase 2 from 6 April 2027, when the threshold drops to above £30,000. Wait — £28,000 is below £30,000, so James is actually still outside Phase 2. He would enter MTD at Phase 3 (6 April 2028, £20,000 or more), since £28,000 exceeds £20,000.

If the buy-to-let instead produces £52,000 gross rental income, James’s qualifying income is £52,000 and he enters MTD at Phase 1 from 6 April 2026. He must use MTD-compatible software to submit quarterly updates covering all his property income — including the buy-to-let figures. The lodger income remains exempt under Rent a Room relief and does not need to be reported in the quarterly updates.

When Rent a Room relief does not help

There are several situations where Rent a Room relief either cannot apply or does not reduce your MTD exposure:

The property is not your main home

If you rent out a room in a property that is not your primary residence — a second home, a buy-to-let, or a holiday cottage — Rent a Room relief does not apply. The full gross rental income counts towards qualifying income. This is one of the most common misunderstandings among landlords with multiple properties.

The room is unfurnished

Rent a Room relief requires the accommodation to be furnished. If you rent out an unfurnished room in your home, the relief does not apply and the income is treated as standard property income.

You operate a trade rather than a simple letting

Where the letting amounts to a trade — for example, running a guest house or B&B with substantial services such as meals, cleaning, and laundry beyond basic room provision — the income may be classified as trading income rather than property income. You can still claim Rent a Room relief against trading income, but the interaction with MTD self-employment thresholds should be carefully considered. In practice, many B&B operators will already exceed the £7,500 Rent a Room threshold and may find it more beneficial to claim actual expenses instead.

Your other income already exceeds the threshold

If your self-employment or other property income already pushes your qualifying income above the MTD threshold, Rent a Room relief on lodger income does not change your MTD status. You are already within scope. The relief simply means that the lodger income itself does not add to the total.

Rent a Room versus the property income allowance

There is a separate £1,000 property income allowance (also called the trading allowance for property) that applies to all property income, not just room lets in your main home. You cannot claim both Rent a Room relief and the property income allowance on the same income. If your lodger income qualifies for Rent a Room relief, use that — the £7,500 threshold is significantly more generous than the £1,000 property allowance.

If you have a small amount of other property income (for example, renting a parking space for £800 per year), the £1,000 property allowance could cover that separately. But you cannot stack the two allowances against the same income stream.

Practical steps if you are a lodger landlord approaching MTD

1. Calculate your qualifying income correctly. Add up your gross self-employment turnover and gross UK property income. Exclude any lodger income that falls within Rent a Room relief (£7,500 or below). Compare the total against the MTD threshold for the relevant phase.
2. Decide whether to claim the relief or deduct expenses. If your lodger income exceeds £7,500, run the numbers both ways. Rent a Room relief gives you a flat £7,500 deduction with no need to track expenses. Claiming actual expenses (mortgage interest apportionment, bills, repairs) may give a larger deduction if your costs are high.
3. Keep records even if exempt. HMRC can enquire into your tax affairs and may ask you to demonstrate that your lodger income was within the £7,500 limit. Keep a simple record of monthly rent received, the dates, and the lodger’s name.
4. Review annually. Rent increases, changes in occupancy, or taking on a second lodger can push you above £7,500. If your circumstances change, recalculate whether Rent a Room relief still covers the full amount.
5. Check your other income. Even if your lodger income is exempt, a new freelance contract or an increase in buy-to-let rents could push your qualifying income above the threshold. Visit our MTD FAQ page for guidance on common threshold questions.

The soft-landing period and penalties

If you do fall within MTD because of other property or self-employment income, HMRC has confirmed a soft-landing period for the 2026/27 tax year. During this period, no penalty points will be issued for late quarterly updates. This gives Phase 1 taxpayers (qualifying income above £50,000) a full year to adjust to the new system.

After the soft-landing period, the standard points-based penalty regime applies. Each late quarterly update earns one penalty point, and accumulating four points triggers a £200 penalty. The final declaration deadline remains 31 January following the end of the tax year, with separate penalties for late filing and late payment.

Frequently asked questions

Does Rent a Room relief apply to Airbnb income?

Yes, provided you are renting out a furnished room (or rooms) in your main home. It does not matter whether you find the guest through Airbnb, SpareRoom, or word of mouth. The £7,500 threshold applies to your total receipts from all such lettings combined, not per platform or per guest.

Can I claim Rent a Room relief if I own the property jointly with my partner?

Yes, but the threshold is halved. Each person can receive up to £3,750 tax-free under the relief. If total receipts from the letting are £7,500 and you split them equally, each person receives £3,750 and the full amount is covered by the relief.

I earn £8,000 from a lodger. Should I claim Rent a Room relief or deduct expenses?

With Rent a Room relief, you pay tax on £500 (the excess above £7,500). If your actual expenses attributable to the letting (a share of utilities, insurance, cleaning, minor repairs) total more than £7,500, you would be better off claiming actual expenses instead. Most lodger landlords with modest income find Rent a Room relief simpler and more beneficial.

Does lodger income count as qualifying income for MTD if I do not claim Rent a Room relief?

Yes. If you choose not to claim Rent a Room relief — for example, because you want to deduct actual expenses instead — your full gross lodger income counts as property income and feeds into the qualifying income calculation for MTD.

I only rent out a room for six months of the year. Can I still claim the full £7,500?

Yes. The £7,500 threshold is not pro-rated. It applies to the full tax year regardless of how many months the room is occupied. If your total receipts for the year are £7,500 or below, the relief covers the full amount even if all the income was received in a single month.

Sources

• GOV.UK: Rent a room in your home
• GOV.UK: Making Tax Digital for Income Tax
• GOV.UK: Work out your rental income when you let property
• GOV.UK: Penalties for failing to meet obligations under Making Tax Digital for Income Tax