Making Tax Digital: What Landlords Need to Know in 2025

If you’re a landlord, here’s a statistic that should catch your attention: HMRC recovered £107 million in landlord tax investigations in 2024/25 alone. That’s more than double the sum pulled back just a few years earlier. The message is pretty clear, the tax police are tightening their net on landlords. And it’s not just retrospective demands: Making Tax Digital for Income Tax (MTD IT) will require landlords to transition to digital record‑keeping and more frequent reporting from April 2026.

So, how can you prepare, especially if you manage your property DIY via a platform like Emoov? This article will explain what MTD means, to whom it applies, and how landlords can stay on the right side of HMRC, while claiming all legally allowed expenses.

1. What Is Making Tax Digital (for Income Tax) & Why It Matters for Landlords

Making Tax Digital (MTD) is the government's push to modernise tax administration by requiring digital record‑keeping and more frequent reporting. [We wonder if anyone is due a rebate if they will transfer it digitally or still send a cheque in the post!] Digital tax reporting already applies to VAT, and from April 2026, it will extend to income tax, including property income.

Under MTD:

• Landlords (sole traders, or individuals with property income) above a certain threshold will need to use HMRC‑approved software.
• Instead of an annual self-assessment, you’ll submit quarterly updates on income and expenses.
• At the year end, you’ll submit a final declaration to reconcile your quarterly summaries.
• If you're a landlord already dealing with multiple properties or mixed income sources, this change will require more careful bookkeeping.

When it comes into force: Landlords with property income (or combined income) above £50,000 will need to comply from April 2026; later thresholds (e.g. £30,000 in 2027, £20,000 in 2028) are planned.

2. The HMRC Crackdown: Why It’s Not Just The Future - It’s Now

The £107 million HMRC recovered in 2024/25 underscores the urgency. The “Let Property Campaign” encourages landlords to come forward voluntarily, before full investigations begin, but the cost of non‑compliance is pretty steep.

Landlords face:

• Recoveries of back-tax for up to 20 years
• Penalties up to 100% of the unpaid tax (or up to 200% in some offshore cases)
• Fines, interest, or formal inquiries
• Reputation damage or legal disputes

In short, waiting until HMRC approaches you is a risky strategy. Being proactive is much safer.

3. What Allowable Expenses Landlords Can Claim (and How to Treat Them Under MTD)

To reduce your tax liability, you can deduct allowable expenses from rental income. These must be wholly and exclusively incurred for the renting of the property, not for your personal or capital costs.

Here are common expenses you can deduct:

• Insurance (landlord, building, contents)
• Maintenance and repairs (e.g. plumbing, minor fixes)
• Letting agent fees or management costs
• Legal fees for tenancy renewals (less than 50 years) or eviction actions
• Accountancy fees
• Utilities or services you pay (only if they are included in the rent)
• Ground rent & service charges
• Advertising & marketing costs for obtaining new tenants
• Travel costs (for viewings, property management or mid-term inspection)
• Replacement domestic items relief (only for replacing items, like-for-like, not brand new items)

Please note: capital improvements (like extensions, major remodelling) are not deductible via rental expenses, although they can be accounted via capital gains tax when you sell.

Under MTD, you’ll need to ensure your accounting software can categorise these expenses properly and trace them accurately each quarter.

4. The Mortgage Interest Relief Trap: What Changed (and Why It Still Catches Landlords Out)

If you're a landlord who used to deduct your full mortgage interest from your rental income - you can’t do that anymore.

Since April 2020, landlords can no longer claim mortgage interest as a business expense. Instead, you receive a basic rate tax credit (20%) on interest payments. This change, known as the Section 24 restriction, means:

• You’re taxed on your full rental income, not your profit after mortgage interest.
• If you’re a higher - or additional - rate taxpayer, you can’t offset interest at 40% or 45% - you’ll only get 20%.
• This often pushes landlords into higher tax brackets, even if their actual profit is low.

This is where many landlords have slipped up, especially those doing their own tax returns. Some continue to incorrectly deduct interest or don’t realise the change affects their overall tax band.

Example:

If you receive £18,000 in rent and pay £10,000 in mortgage interest, you used to be taxed on £8,000. Now, you’re taxed on the full £18,000 - and just get a £2,000 tax credit at the end.

If you haven’t updated your tax method since 2020, you could be underpaying. With MTD coming in and quarterly reporting becoming mandatory, mistakes like this will be far easier for HMRC to catch.

5. How to Prepare Right Now (Your DIY Landlord Action Plan)

You don’t need to wait until 2026 to start getting your books in order. Here’s what you can do now:

• Choose MTD-compatible software (like Xero, FreeAgent, or specialist landlord software)
• Switch to digital record-keeping - receipts, invoices, payments - rather than paper-only
• Segment your accounts by property or income stream
• Start quarterly tracking of income vs expenses
• Stay up to date with HMRC guidance and the software changes
• Seek professional advice - especially if your portfolio is complex

6. Final Thoughts & Call to Action

MTD for Income Tax is coming, and it’s a big shift for landlords, but it's not something you have to panic about. With reasonable preparation, you can gently ease into it. Given HMRC’s recent record reclaim, now is the time to get your property finances in order.

Image is from a property for rent October 2025. A beautiful light and spacious 2 bedroom unfurnished flat for rent in Oakfield Grove, Clifton.For more details see here.