How rent a room relief works
Rent a room relief allows you to earn a certain amount of rent from letting furnished accommodation in your home without paying tax on it. If your gross rental income is below the annual limit, you do not need to report it to HMRC or pay tax on it.
If your income is above the limit, you can choose to deduct the flat rate allowance instead of calculating actual expenses. This simplifies the tax calculation but does not change the fact that the income exists.
The 7,500 and 3,750 limits
The standard annual tax-free limit for rent a room relief is 7,500 pounds. If you share the rental income with another person, such as a partner or spouse, the limit is halved to 3,750 pounds each.
These figures are the maximum amounts of rent you can receive tax-free under the scheme. They are not deductions from your total income for other purposes.
Counting income toward the MTD threshold
For Making Tax Digital for Income Tax (MTD ITSA), the threshold is tested on your qualifying income. This is the total income from self-employment and property before expenses are deducted.
Rental income from letting a room in your home counts as property income. You must add this gross rent to any self-employment income to see if your total exceeds the MTD threshold.
The fact that you might not pay tax on the rent due to relief does not mean it is ignored for the threshold test. The threshold looks at the turnover, not the taxable profit.
| Tax year | MTD ITSA threshold | Start date |
|---|---|---|
| 2024-25 | Over 50,000 pounds | 6 April 2026 |
| 2025-26 | Over 30,000 pounds | 6 April 2027 |
| 2026-27 | Over 20,000 pounds | 6 April 2028 |
Digital records for rental income
If you are required to use MTD ITSA, you must keep digital records of your property income. This includes the rent received from letting a room.
You do not need to keep digital records for income that is not qualifying income, such as employment income through PAYE or dividends. However, all UK property income is treated as one property business for the threshold test.
When you send quarterly updates, you report the total income for the period. If you claim rent a room relief, this is typically handled when you submit your final tax return, not necessarily in the quarterly update totals, though the gross income must be recorded.
Quarterly updates and relief
You must send four quarterly updates each year if you are in scope. These updates are summaries of your income and expenses.
If you claim rent a room relief after the tax year ends, you may need to resend the fourth quarterly update. This ensures HMRC has the correct figures before tax adjustments are made.
Even if your income is low, you must send an update for a period with no income and no expenses if you are signed up for MTD ITSA.