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17/12/25 3:30 pm
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Landlord tax is a highly complex area, so if you’re investing in buy-to-let or renting out any property you own, it’s strongly advisable to seek guidance from a specialist property tax adviser. They can help make sure you:
a. Own, let, generate income from, and realise gains on your investment in the most tax-efficient way for your personal circumstances, and
b. Pay the correct amount of tax to HMRC at the right time.
Incorrectly declaring income or gains - and therefore underpaying tax on your profits - can result in financial penalties and even criminal prosecution. It’s simply not worth taking the risk.
In the 2024/25 tax year, HMRC compliance crackdowns saw landlords pay a combined total of £107 million in tax on undeclared earnings - an average of more than £13,500 per landlord. This figure was more than double the amount recovered just three years earlier.
Below are five of the most common mistakes landlords make, and the ones most likely to bring them into conflict with HMRC:
1. Failing to take professional advice
Ideally, advice should be sought before investing to ensure your buy-to-let business - however small - is structured in the most tax-efficient way and fully compliant with legal and tax requirements. Professional guidance can also help prevent the loss of valuable allowances or benefits that could leave you worse off.
2. Not realising income must reflect ownership shares
Where a landlord has a partner, the split of rental income must mirror the proportion of property ownership. Many couples arrange for the lower earner to receive a larger share of the rental income to reduce the household’s overall tax bill. While this is perfectly legal, the ownership must match the income split - for example, receiving 70% of the income requires owning 70% of the property.
3. Claiming expenses that aren’t allowable
Expenses are a particularly complex area, and mistakes are easy to make. Only certain costs can be deducted from income on a self-assessment return (‘revenue expenditure’, such as repairs to furnishings), while others should be offset against capital gains (‘capital expenditure’, such as installing a new or upgraded kitchen).
Allowable revenue expenses generally include day-to-day business running costs and training that enhances existing skills - but not the cost of learning a completely new skill, even if it benefits you as a landlord. This is an area where an accountant with buy-to-let expertise can be especially valuable.
4. Errors in self-assessment returns
Some landlords don’t realise they need to submit a self-assessment tax return at all - particularly those who are PAYE employees in their main job, have inherited a property, or have rental profits below the tax threshold.
For example, since mortgage interest is no longer fully deductible, some landlords end up paying tax on rental income they don’t actually benefit from. Understanding all tax obligations before purchasing a rental property is crucial to ensuring the investment makes sense from a net profit perspective.
5. Incorrectly reporting capital gains
When a rental property is sold or transferred, capital gains tax is usually due. A common mistake - particularly among landlords who have remortgaged and released equity - is assuming the gain is based on remaining equity rather than the difference between the original purchase price and the final sale price.
For instance, if you purchase an investment property for £250,000 with an 85% loan-to-value mortgage, and after ten years it is worth £350,000, you might remortgage at 85% LTV and release £52,500 in equity. If the property later rises to £400,000, is remortgaged again at 85% LTV, and then sold two years later for the same amount, you may only have £60,000 equity left - but the capital gain is £150,000. This is the figure on which CGT will be calculated.
What to do if you think you haven’t paid enough tax
In 2013, HMRC introduced the Let Property Campaign, allowing landlords to voluntarily disclose unpaid tax on rental income and reduce - or in some cases avoid - penalties altogether. Since its launch, more than 100,000 disclosures have been made, accounting for just over 4% of all UK landlords.
If you believe you have undisclosed income, the first step is to contact HMRC. You then have 90 days to calculate and pay the amount owed. Penalties typically range from 0% to 35% of the tax due.
Failing to disclose voluntarily - and being identified by HMRC instead - can result in penalties of up to 100% of the tax owed, as well as the possibility of criminal prosecution.
To talk through managing your costs and maximising returns, speak with our buy-to-let experts at your local branch - we’re always happy to help.
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