Making Tax Digital and the Rent a Room Scheme: Complete Guide

What is the Rent a Room scheme?

The Rent a Room scheme allows homeowners and tenants to earn up to £7,500 per year tax-free from letting furnished accommodation in their own home to a lodger. The allowance is £3,750 if you share the property income with a partner or spouse.

The scheme has been in place since 1992 and is designed to encourage people to make use of spare rooms in their home. It applies automatically if your lodger income is at or below the threshold — you do not need to do anything to claim it. HMRC simply does not count it as taxable income.

Who qualifies for the Rent a Room scheme:

• Homeowners letting a furnished room in their main residence
• Tenants sub-letting a furnished room (if their tenancy agreement allows it)
• People letting rooms in their main home while they continue to live there

Who does not qualify:

• Landlords letting a property they do not live in (standard buy-to-let rules apply)
• People letting unfurnished rooms (the room must include furniture)
• Those letting their home for short-term commercial use (e.g. as a pop-up venue)
• Limited companies (the scheme is for individuals only)

The £7,500 threshold applies to your gross lodger income — the total amount received before any expenses are deducted. If you receive exactly £7,500 over the tax year, your tax liability from that lodger is zero.

If your lodger income exceeds £7,500, you have two options: pay tax on the excess only (the default Rent a Room treatment), or elect to use standard rental income rules (gross income minus allowable expenses). Most people with a lodger stick with the Rent a Room approach because it is simpler.

The £7,500 limit has been frozen since April 2016 and remains unchanged in 2026, despite significant rises in average rents over the same period. This means the threshold has eroded in real terms, and more people — particularly in London — now have lodger income that exceeds it.

Does the Rent a Room scheme count for Making Tax Digital?

Yes, Rent a Room income is property income — but only the taxable portion (the amount above £7,500) counts as qualifying income for the MTD threshold. If your lodger income is £7,500 or less, it contributes zero qualifying income for MTD purposes.

This is a critical distinction. MTD thresholds are based on qualifying income, not gross income. The Rent a Room allowance effectively removes the first £7,500 from your qualifying income calculation.

Here is how the calculation works:

The practical takeaway: for the overwhelming majority of people with a lodger, Rent a Room income alone will never trigger MTD. Even at London rents of £1,500/month, you would earn £18,000 in gross lodger income, of which only £10,500 is qualifying income — well below the £50,000 threshold.

Where the interaction becomes important is when you also have other property income — for example, if you are a homeowner with a lodger and you also own buy-to-let properties.

Rent a Room landlords who also have buy-to-let properties

If you have both a lodger and separate buy-to-let properties, all your property income is combined for the MTD threshold. However, only lodger income above £7,500 is added to your buy-to-let income — the allowance still applies.

This is the scenario that catches some landlords off guard. They know their buy-to-let income is approaching £50,000, and they wonder whether their lodger tips them over the threshold.

How the calculation works:

1. Calculate gross income from all buy-to-let properties
2. Calculate gross lodger income
3. Subtract £7,500 from gross lodger income (or £3,750 if shared) — this is your qualifying lodger income
4. Add qualifying lodger income to your buy-to-let income for the total qualifying income figure
5. If total exceeds £50,000: in scope for MTD from April 2026

Worked examples:

Scenario E is worth examining closely. A landlord with £49,000 in buy-to-let income and a lodger paying £708/month (£8,500/year) would have exactly £50,000 in qualifying income — right at the MTD threshold. Their lodger has pushed them into scope, even though only £1,000 of the lodger income actually counts.

If you are in the £45,000-£50,000 band for buy-to-let income, it is worth calculating whether your lodger income could push you over. Many landlords in this position are genuinely unaware of the interaction.

The key point: the Rent a Room allowance is not ignored for MTD — it actively reduces how much lodger income counts. You do not simply add your gross lodger income to your buy-to-let totals.

Rent a Room income only (no other rental properties)

If your only property income is from a lodger under the Rent a Room scheme, you would need to earn more than £57,500 per year from your lodger before your qualifying income reached the £50,000 MTD threshold. This is extremely rare in practice.

To be precise: if you earn £57,500 gross from a lodger, your qualifying income (after deducting the £7,500 allowance) is exactly £50,000. At that level, you would be mandated into MTD from April 2026.

In real terms, £57,500 from a single lodger means charging approximately £4,792 per month. This is theoretically possible in central London for a high-specification room in a prime location, but it applies to a vanishingly small number of people.

For the vast majority of people with a lodger and no other property income, MTD is simply not relevant. Their qualifying income from the lodger — if they have any at all — will be well below the threshold.

Common lodger scenarios and MTD status:

How is Rent a Room income reported under Making Tax Digital?

If you are in scope for MTD and have lodger income above the £7,500 allowance, you report the taxable excess (gross lodger rent minus £7,500) as UK property income in your quarterly updates. The allowance is applied before reporting — you do not report the gross amount.

Under Making Tax Digital, your quarterly updates cover all property income and expenses. If you also have buy-to-let properties, your Rent a Room income forms part of the same UK property business income — HMRC treats all UK property income as a single business for MTD purposes.

What you report in each quarterly update (if in scope):

• Total rental income from buy-to-let properties received in that quarter
• Lodger income above the £7,500 pro-rated quarterly allowance
• All allowable expenses paid in that quarter

The pro-rated quarterly allowance is £1,875 per quarter (£7,500 divided by 4). In practice, your MTD software should handle this automatically — you enter your lodger income and the software applies the exemption.

If the Rent a Room scheme is your only source of property income and your lodger income stays below £7,500 per year, you are not in scope for MTD and do not need to file quarterly updates. You continue with standard Self Assessment if you have other income sources that require it (employment, savings, etc.).

What about AirBnB and short-term lets?

AirBnB lets of a room in your own home while you live there can qualify for the Rent a Room scheme, which means the same MTD rules apply — only the income above £7,500 counts. Letting your whole property on AirBnB does not qualify for Rent a Room.

The Rent a Room rules for short-term letting are the same as for a long-term lodger: you must be letting furnished accommodation within your main residence while you continue to live there. The frequency or duration of lets is not the determining factor — it is whether the property is your main home.

Rent a Room applies:

• AirBnB lets of a spare room while you remain in the property
• Short breaks or long stays — the duration does not matter
• Mixing long-term lodgers with occasional short-term lets (combined income assessed against the £7,500 threshold)

Rent a Room does not apply:

• Letting your whole home on AirBnB and vacating during the let
• Letting an investment property (not your main home) on AirBnB
• Unfurnished lets (Rent a Room requires furnished accommodation)

Important: the Furnished Holiday Let (FHL) regime was abolished from April 2025. From that date, short-term rental income from properties that are not your main home is treated as standard property income — the FHL tax advantages no longer apply. This means AirBnB income from investment properties is now simply property income for both tax and MTD threshold purposes.

If you let your own home on AirBnB using Rent a Room, your income is treated the same way as lodger income: only the amount above £7,500 is qualifying income for MTD. The fact that guests come and go rather than being a permanent lodger makes no difference to how HMRC treats the income.

Rent a Room and digital records under Making Tax Digital

If you are in scope for MTD (because of other property income combined with lodger income), all your records must be kept digitally from the start of your first MTD tax year. Even if you are below the threshold, digital records are good practice.

For landlords who are in scope due to their buy-to-let income and whose lodger income adds a taxable element on top, MTD record-keeping requirements cover both income streams. You cannot keep your lodger income in a separate paper system — everything must be in HMRC-compliant digital records.

What to record digitally for your lodger income:

• Date each rent payment was received
• Amount received (gross)
• Confirmation that Rent a Room scheme is being applied
• Any expenses incurred if you elect to use standard property income rules instead

If your lodger income is your only property income and it stays below £7,500, you have zero qualifying income and are not in scope. In that case, you do not need to use MTD software. However, keeping a simple digital record of your lodger income is still sensible — it makes your Self Assessment filing easier and gives you a clear audit trail if HMRC ever queries your returns.

If your income is variable — perhaps your lodger goes travelling for six months and sub-lets their room to someone else, or you use a platform like SpareRoom where your income fluctuates — it is worth tracking your running total against the £7,500 threshold throughout the year so you know where you stand.

Can you switch between Rent a Room and standard rental income treatment?

Yes. You can elect to use standard rental income rules (gross income minus allowable expenses) instead of the Rent a Room scheme in any tax year. The election is made year by year, and you choose whichever is more advantageous.

Under the standard rules, you report your gross lodger income and deduct any allowable expenses — a share of household bills, maintenance costs relating to the lodger's use of the property, and so on. If your actual expenses are high, the standard approach might produce a lower taxable profit than simply paying tax on the excess over £7,500.

In practice, the Rent a Room approach is almost always simpler and usually more tax-efficient, particularly for people with modest lodger income. There are no complex expense allocation calculations, and HMRC's automatic exemption means less paperwork.

When standard rules might be worth considering:

• Your lodger income is significantly above £7,500 and you have substantial expenses
• You have made capital improvements that generate high annual costs
• You want to record a loss (not possible under Rent a Room — it only applies to income, not losses)

Under MTD, whichever treatment you choose must be applied consistently throughout that tax year. You cannot use Rent a Room for some quarters and standard rules for others within the same year. If you wish to switch method, you do so from the start of a new tax year.

The election to opt out of Rent a Room is made formally to HMRC. If you are using MTD software, it will guide you through how to record this. If you are still filing standard Self Assessment (because you are below the MTD threshold), you note your election on the property income pages of your return.

Rent a Room and the MTD voluntary sign-up

Even if you are below the mandatory MTD threshold, you can sign up for Making Tax Digital voluntarily. This can make sense for landlords who want to get familiar with the process before it becomes compulsory, or whose income is approaching the threshold.

HMRC's voluntary pilot for MTD has been running since 2022. If you sign up voluntarily, you are treated as an early adopter — the same rules apply, but without mandatory deadlines for the initial period.

For someone with a lodger as their main property income source, voluntary sign-up may not be worth the extra administration unless:

• You also have buy-to-let income approaching £50,000 and want to prepare
• You expect your lodger income to increase significantly (perhaps you are converting a room or charging more)
• You are already using accounting software and MTD compliance requires minimal extra effort
• You want visibility of your tax position throughout the year rather than an annual surprise

If you sign up voluntarily and your Rent a Room income is your only property income, you would report the taxable portion (above £7,500) as property income each quarter. If your lodger income is below the allowance, you have nothing to report on the property side — though you may still have other income sources that require MTD reporting if you are self-employed.

Practical steps for Rent a Room landlords approaching MTD

1. Calculate your qualifying income. Add your buy-to-let gross income to any lodger income above £7,500 (or £3,750 if shared). If the total is under £50,000, you are not in scope for April 2026.
2. Track your lodger income throughout the year. If your lodger income is variable, keep a running total. You need to know where you stand relative to the £7,500 Rent a Room allowance.
3. Note whether your total qualifying income is approaching £50,000. If your buy-to-let income plus taxable lodger income combined is between £45,000 and £50,000, monitor it closely. A rent increase or new tenancy could push you into scope mid-year.
4. If you are in scope, start digital records from 6 April 2026. All transactions from the start of the 2026/27 tax year must be in HMRC-compliant software.
5. Choose MTD software that handles Rent a Room. Not all landlord accounting tools explicitly account for the Rent a Room allowance. Ensure your chosen software correctly excludes the first £7,500 of lodger income from your qualifying totals.
6. Consider whether to elect out of Rent a Room. If your lodger-related expenses are high, model both approaches before the start of the tax year and choose whichever is more tax-efficient.