HMRC records 107 million pounds as a result of landlord tax investigations; see the warning signs

Last year, the average amount of tax that residential landlords had to pay from undisclosed rental income was £13,713 per landlord This was the highest amount since a crackdown started a little over ten years ago

As part of a compliance crackdown, the tax office forced landlords to pay a record 107 million to HMRC last year. This amount was more than twice as much as what was recouped three years prior, according to new data.

According to information gathered by the accounting firm Price Bailey under the Freedom of Information (FOI) Act, buy-to-let landlords were required to pay HMRC an average of 13,713 per year in 2024 - 2025.

The results coincide with the prediction by brokers that landlords will leave the BTL market in large numbers, with smaller landlords in particular selling up in their tens of thousands to avoid more onerous tax and compliance rules. This outlook is supported by higher capital gains tax receipts on real estate.

The Let Property Campaign (LPC), which was started in the 201314 tax year to encourage landlords who owe tax on rental income from renting out residential property in the UK or overseas to report previously unreported taxes, is partially responsible for the HMRC data made public under the FOI.

You must notify HMRC of any unpaid taxes right away if you are a landlord with undisclosed income. After ninety days, you will have ninety days to figure out how much you owe. You risk harsher fines or even criminal prosecution if you don't do this now and HMRC discovers it later.

"Over the past few years, we've helped a lot of landlords make voluntary disclosures, usually after they've received an HMRC nudge letter," said Andrew Park, tax investigations partner at Price Bailey.

Let's run a campaign.

According to the Freedom of Information request, the Let Property Campaign has generated 570 million pounds from residential landlords in the United Kingdom. HMRC's 2024 - 2025 tax recovery of almost 14,000 per disclosure was by far the largest since the campaign's launch over ten years ago.

The information made public under the FOI is tax recovered from voluntary disclosures made under the LPC as well as from other compliance-related activities, like the discovery assessment and non-responder work done by HMRC.

In the first quarter of 2024, there were roughly 2.2 million private landlords in the United Kingdom, according to the Ministry of Housing, Communities & Local Government. Just over 4% of all UK landlords have made disclosures under the LPC, with 100,332 disclosures made thus far.

According to Price Bailey, these figures demonstrate that HMRC will be able to identify thousands more unreported landlords annually for many years to come.

Guidelines for landlords.

Although they frequently make little to no economic profit, landlords frequently sincerely are unaware that they may be required to file a self-assessment tax return or that they have taxable profits to report.

"They are frequently unintentional landlords who retained a property after briefly relocating overseas, inheriting a property, or moving in with a new partner. Many people lack financial literacy, receive large amounts of income from other sources, don't fully comprehend their responsibilities, and haven't sought advice before," Park said.

Landlords frequently fall victim to the "phantom profit" tax trap. Many landlords now look profitable on paper since the phased removal of mortgage interest relief, but this is only because tax law ignores the entire cost of debt servicing.

According to Park, this results in a "phantom profit" effect where landlords are forced into arrears or cause compliance issues because they are taxed on income that they never actually received.

"The distinction between the tax treatment of capital expenditures and revenue expenditures is often misunderstood," he continued.

In contrast to the repair and maintenance of an existing kitchen or a like-for-like replacement, capital expenditures, such as installing a significantly upgraded kitchen, are not deductible against rental income.

"That distinction trips a lot of landlords up and can be grey around the edges," Park stated.

Dangers of landlord taxes.

Price Bailey noted that new and impending tax changes in the UK are probably going to make it more difficult for landlords to comply with HMRC regulations, particularly those who don't have access to digital tools or expert advice.

One of these is the implementation of Making Tax Digital for income tax, which, starting in April 2026, will mandate that landlords submit their income tax returns on a quarterly basis using software that complies with HMRC's regulations.

More landlords will be subject to CGT obligations when selling property as a result of the reduction in the annual capital gains tax (CGT) exemption, which was reduced to just 3,000 starting in April 2024, and the higher CGT rates that apply to disposals after October 2024 (18 percent for basic-rate taxpayers, 24-28 percent for higher-rate taxpayers).

In a different piece, we examine strategies for reducing your capital gains tax liability.

To maintain mortgage interest deductibility, many landlords have switched to limited company structures at the same time. However, corporation tax now varies from 19 to 25 percent based on profit levels, making tax planning more complicated. This includes determining how profits are distributed, whether through dividends or salaries.

Park stated: "Landlord compliance is becoming more difficult due to increased reporting requirements, decreased allowances, and the increasing intricacy of relief regulations.

Especially if they have never sought advice or believed no taxes were owed, landlords should thoroughly review their tax affairs.

"Even inadvertent omissions can result in significant liabilities as HMRC's compliance activity intensifies," Park stated.