HM Revenue & Customs (HMRC) recovered more than £104 million in unpaid tax from landlords during the 2025/26 tax year, marking the third consecutive year that tax recoveries from the sector have exceeded the £100 million mark.
According to figures obtained by accountancy firm Price Bailey, HMRC collected £104.3 million from landlords through a combination of voluntary disclosures, compliance checks and discovery assessments. The figures highlight the tax authority’s increasing focus on ensuring landlords accurately declare rental income and meet their tax obligations.
Voluntary Disclosures Reach Highest Level in Years
During the year, 11,511 landlords voluntarily disclosed previously undeclared tax through HMRC’s Let Property Campaign, representing the highest number of disclosures since the 2018/19 tax year.
Although more landlords came forward, the average amount paid fell to £9,063, compared with a record £13,713 in the previous year. This suggests HMRC is identifying a greater number of landlords with smaller tax liabilities rather than focusing solely on larger cases.
The Let Property Campaign continues to offer landlords an opportunity to correct undeclared rental income voluntarily, often resulting in lower penalties than if HMRC discovers the unpaid tax through its own investigations.
Since the campaign launched in 2013/14, it has generated approximately £674 million in additional tax revenue.
HMRC’s Data Checks Are Becoming More Sophisticated
Tax specialists say HMRC is becoming increasingly effective at identifying landlords who may have failed to declare rental income.
Andrew Park, Tax Investigations Partner at Price Bailey, explained that HMRC’s growing use of data matching means many landlords are now receiving so-called ‘nudge letters’, encouraging them to review their tax affairs.
These letters often prompt voluntary disclosures before formal investigations begin.
According to Park, HMRC is widening its compliance activity to include landlords with relatively modest rental income, rather than concentrating only on larger property portfolios.
Many of those contacted are believed to be accidental landlords — individuals who may have kept a previous home after moving in with a partner, inherited a property, or temporarily relocated overseas while renting out their home. In many cases, they may not realise that rental profits need to be declared for tax purposes.
Land Registry Data Helps Identify Landlords
HMRC is also making greater use of Land Registry records to identify individuals who own multiple residential properties.
By comparing property ownership records with tax returns, the department can identify landlords who may not have declared rental income correctly. Where discrepancies are found, HMRC may issue a nudge letter asking the individual to check whether they have paid the correct amount of tax.
This increased use of data means it has become significantly more difficult for undeclared rental income to go unnoticed.
Mortgage Interest Rules Continue to Cause Problems
Price Bailey says changes to mortgage interest tax relief remain one of the biggest causes of confusion for landlords.
Previously, landlords could deduct all mortgage interest from rental income before calculating taxable profits. However, under the current rules, mortgage interest is no longer fully deductible and is instead replaced by a basic rate tax credit of 20%.
This means some landlords can appear to make a taxable profit even when their actual cash profit is minimal or, in some cases, non-existent.
Tax experts often refer to this as ‘phantom profit’, where taxable income is higher than the landlord’s real financial gain.
As a result, some landlords unexpectedly face tax bills despite generating little disposable income from their rental properties.
Understanding Allowable Expenses Is Essential
Another area causing difficulties is the distinction between revenue expenses and capital improvements.
Routine maintenance or replacing fixtures on a like-for-like basis is generally considered an allowable business expense and may qualify for tax relief.
However, improvements that significantly enhance or upgrade a property are usually treated as capital expenditure, meaning different tax rules apply.
Misunderstanding these differences can result in incorrect tax returns and potentially trigger further enquiries from HMRC.
Making Tax Digital Increases Reporting Requirements
Landlords are also facing additional administrative responsibilities under Making Tax Digital (MTD) for Income Tax.
Since April 2026, landlords and self-employed individuals with combined property and business income above £50,000 have been required to keep digital records and submit quarterly updates to HMRC using compatible software.
The income threshold will reduce to £30,000 from April 2027 before falling further to £20,000 from April 2028, bringing many more landlords into the digital reporting system.
Alongside MTD, recent reductions to the annual Capital Gains Tax allowance and higher Capital Gains Tax rates on residential property disposals have added further complexity to landlords’ tax obligations.
Landlords Urged to Review Their Tax Affairs
Tax professionals are encouraging landlords to regularly review their tax position to ensure all rental income is correctly reported and any available tax reliefs are claimed appropriately.
As HMRC expands its compliance activity and improves its ability to identify undeclared income through data matching, even genuine mistakes can lead to unexpected tax bills, penalties and interest charges.
HMRC says its Let Property Campaign remains the simplest way for landlords to voluntarily correct previous errors. By coming forward before formal investigations begin, landlords may benefit from reduced penalties while ensuring their tax affairs remain fully up to date.
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