Does MTD apply to rent-a-room income? Small landlord edge cases
Short answer: Making Tax Digital for Income Tax is decided by your qualifying income: the self-employment and property income you must put on your tax return, before expenses. Rent-a-room income under £7,500 is tax-free automatically and does not usually go on a return, so on its own it does not bring you into MTD. If you are in MTD and use rent-a-room relief, GOV.UK says you may need digital records of that income.
To see where you stand, use the MTD checker. For the basic rule, see what counts as qualifying income.
Rent-a-room relief and MTD
The Rent-a-Room scheme lets you earn up to £7,500 a year tax-free from letting furnished accommodation in your own home. If you share the income with someone else, the limit is halved to £3,750.
GOV.UK’s MTD guidance on digital records says you will need digital records of your Rent-a-Room income, and that the relief is then applied automatically if either of these is true on your last return:
- you used the relief for your home and also had income from another UK property
- you had no other UK property income, but your gross UK property income was above the Rent-a-Room threshold
GOV.UK also says you may need to resend your fourth quarterly update to record Rent-a-Room income if you decide to claim the relief after the tax year ends.
Does rent-a-room income count towards the threshold?
GOV.UK’s qualifying income page does not mention rent-a-room. The regulations behind MTD count the income you are required to include in your return, before deductions. Under the £7,500 limit the relief is automatic and you do not need to report it, so it does not count. Above the limit you must complete a return, so expect the income to count. If you are close to a threshold, confirm with HMRC.
Lodger income above the limit
If you earn more than the Rent-a-Room limit, GOV.UK says you must complete a tax return. You then choose between two routes: opt in to the scheme and claim the tax-free allowance, or opt out and record your lodger income and expenses on the property pages of the return.
Example: Maya has a lodger. Maya receives £9,000 a year from a lodger. That is over £7,500, so she files a return. She can claim the Rent-a-Room allowance, or opt out and report the £9,000 as property income with expenses.
Either way, the lodger income is on Maya’s return, so it is part of her qualifying income. If she is in MTD, she keeps digital records of it.
Property allowance, trading allowance and MTD
You can get up to £1,000 tax-free for property income and up to £1,000 for trading income each tax year, and you get one allowance of each if you have both kinds of income. If you use an allowance you cannot also deduct expenses against that income. GOV.UK says you cannot use the property allowance on income from letting a room in your own home under the Rent a Room scheme.
For MTD, GOV.UK’s digital records guidance says:
- If you claimed the property income allowance on your last Self Assessment return, you need digital records of your UK property income and expenses, and they go into your quarterly updates.
- You do not need digital records of property income for MTD if the income was below the property income allowance threshold and you did not need to declare it on your previous return.
- The same two rules apply to the trading income allowance and self-employment income.
Example: Tom sells crafts and lets a drive. Tom earns £800 from a parking space and £700 from craft sales. Both are under £1,000, neither was declared on his last return, and he claimed no allowance. On GOV.UK’s wording he does not need MTD records for either.
The same logic applies to the threshold. Income of £1,000 or less that you do not have to report is not part of your qualifying income. If you report the income and claim the allowance, the allowance does not reduce your qualifying income, because it is measured before deductions.
A new letting part way through the year
If you inherit or buy a property and start letting it, a few GOV.UK rules apply:
- Qualifying income comes from your tax return for an earlier year, not the current one.
- If your property income covers only part of a year, GOV.UK says “you need to annualise your income yourself”.
- For a brand new income source, digital records are not needed until the tax year after you first include it in a return sent with compatible software. GOV.UK’s example is a business started in May 2027, which needs digital records from 6 April 2029. You can start earlier.
If you already let property in the UK, a new letting joins your existing UK property business. It is not a separate MTD business. See what goes in a quarterly update.
Using a letting agent
GOV.UK’s MTD guidance does not mention letting agents or the statements they send. Its references to an “agent” mean someone who handles your record keeping or MTD submissions with your authorisation.
The duties stay with you. You need digital records of the property income and expenses, each with an amount, a date and a category, kept in software that works with MTD. An agent’s statement on its own is not a digital record in that sense.
Example: Ben uses a letting agent. The agent collects £1,000 rent a month, takes a £100 fee and pays Ben £900 with a statement. Ben records £1,000 of rent and a £100 professional fee, not £900 of income. His qualifying income uses the full rent, because it is measured before expenses.
Foreign property income
GOV.UK says that if you were UK tax resident, both UK and foreign property income count towards your qualifying income. If you were not UK tax resident, only UK property income counts, plus self-employment income you declared on your UK return. Foreign income you have not declared on your UK Self Assessment return does not count.
Example: Chloe rents a flat in France. Chloe is UK tax resident. She has £14,000 of rent from a UK house and £9,000 from the French flat. Her qualifying income is £23,000.
For records, GOV.UK says you need separate records for each foreign property, and all foreign properties count as one foreign property business. The £90,000 turnover threshold for simpler categories does not apply to foreign property income.
If you have a trade as well, see MTD for a sole trader and landlord. If a property is shared, see MTD for jointly owned property. If you think you may be exempt, see MTD exemptions.
Sources
This guide is general information, not tax or legal advice. Rules can change: check GOV.UK or speak to an accountant about your situation. SendMTD is not affiliated with HMRC.