HM Revenue & Customs (HMRC) has acknowledged the financial and time costs that landlords will face due to the Making Tax Digital (MTD) initiative. This new regulation mandates landlords to maintain their tax records electronically and submit their reports through HMRC-approved software, marking a significant shift from traditional paper-based record-keeping.
The requirements for Making Tax Digital for Income Tax will come into effect in stages, based on the annual income from business or property. Starting from 6 April 2026, landlords earning more than £50,000 annually will need to comply with the new digital record-keeping and reporting requirements. This threshold will extend to those with an annual income exceeding £30,000 from April 2027.
Under these regulations, landlords are required to submit a detailed report for each tax year, encompassing the business’s trading or property income, allowable expenditure, and any claims for allowances or reliefs. Additionally, interim cumulative reports must be submitted quarterly on fixed dates, ensuring continuous digital tracking of financial activities.
The transition to digital comes with its financial implications. HMRC has provided estimates on the additional costs that landlords will incur. Those with incomes between £30,000 and £50,000 are expected to face an average transitional cost of £350, along with an average annual additional cost of £110. For landlords earning above £50,000, the estimated average transitional cost is slightly lower at £285, but the annual additional cost remains comparable at £115.
Sam Reynolds, CEO of Zero Deposit, voiced concerns over the initiative.
“Although the idea of digitalisation is a good one in theory, the reality is that many landlords will have to absorb additional costs, while being wrapped up in yet more red tape by HMRC. At the lower property income threshold of £30,000 to £50,000, landlords are expected to pay £350 for the imposed transition as well as an ongoing cost of £110 each year,” he said.
“This may be a bridge too far, especially while the sector is still coming to terms with the financial challenges posed by high interest rates and increased buy-to-let running costs driven by inflation.”
Reynolds further highlighted the broader impact of the initiative.
“It’s also fair to say that the additional cost, red tape, and time drain of the new initiative will be seen by many as a bitter pill to swallow given the string of legislative changes they’ve already had to stomach in recent years and will only serve in making the sector even less attractive to current and prospective landlords,” he said.
“What we’re keen to hear more of is incentives for landlords to invest in the sector and increase the volume of available rental properties; both antidotes to the current low levels of stock and unsustainably high rental values.”
From April 2026 or 2027, depending on their income bracket, landlords will be obligated to:
This move is part of HMRC’s broader objective to modernize the tax system and enhance its efficiency through digitalization. However, the financial and operational burden on landlords, particularly small-scale operators, raises concerns about the broader implications of such regulatory changes on the property rental market.
As the deadlines approach, landlords are advised to prepare for the transition by familiarizing themselves with the compliant software and potentially incurring initial costs to adapt to the digital-first approach to tax reporting.
