How does the Rent a Room scheme work under MTD?

The Rent a Room scheme lets you earn up to £7,500 a year tax-free from a furnished room in your main home, and the allowance is unchanged for 2026/27. Making Tax Digital does not alter the scheme itself. What changes is the arithmetic around the threshold: once you are in MTD, your gross lodger receipts count towards the £50,000 qualifying income test — even though the first £7,500 stays tax-free.

The £7,500 allowance

• It covers furnished accommodation in your only or main home.
• It is automatic — you get it unless you choose the actual-costs method instead.
• It is £7,500 a year in total, no matter how many rooms or lodgers you have.
• Joint owners share it: £3,750 each.
• It is tax-free, not just tax-reduced — lodger income up to £7,500 is simply not taxed.

Does lodger income push you into MTD?

Qualifying income is your gross property income plus any self-employment income. Once you are in MTD, gross receipts count — the £7,500 allowance reduces your tax, not the threshold test.

• A lodger paying £800 a month is £9,600 a year of gross receipts.
• Add £45,000 of rent from a flat and you are over £50,000 — mandated, even though only £2,100 of the lodger income is taxable.
• Lodger income on its own would need to top £50,000 to pull you in, which almost no lodger arrangement does.

HMRC is auto-enrolling landlords in stages from September 2026. If the letter arrives, it is the gross figure HMRC will be looking at.

Automatic vs actual costs

The allowance is the default. You can instead elect to be taxed on your actual profit — rent minus expenses — which only pays off if your costs come to more than £7,500. That is rare with a single lodger, but possible where running costs are high. You can switch back to the allowance when it suits you, within HMRC's time limits. Under actual costs the normal property rules apply: repairs yes, improvements no, and mortgage interest as a 20% tax credit rather than a deduction.

Recording lodger income under MTD

In MTD, lodger rent is property income like any other. Each payment is logged with a date, an amount and a category, and the totals flow into your quarterly updates alongside rent from other properties. Keep the gross figure in your records — the £7,500 allowance is applied in the tax calculation, not by shrinking what you log.

Honest small print: Rent a Room only covers lodging in your own home. Letting a whole second property is ordinary rental income from the first pound — and holiday lets lost their separate tax regime on 6 April 2025.

See also: the full landlord MTD guide and what landlords can claim under actual costs.