Landlord accounting in the UK

Landlord accounting in the UK – a specialist guide

Introduction

If you let property in the UK, whether a single buy-to-let or a portfolio of properties, proper accounting and compliance with UK tax rules is essential. This guide explains the key accounting and tax rules for landlords in the UK: how to record income and expenses, the treatment of profits and losses, allowable deductions, and what you must do to stay compliant with HM Revenue & Customs (HMRC). It also covers the forthcoming changes under Making Tax Digital for Income Tax (MTD for IT) and what landlords should be doing now to prepare.

1. What is a property business and how is rental income treated?

When you let residential property in the UK you are generating rental income which must generally be declared to HMRC and taxed. According to HMRC guidance “Work out your rental income when you let property” you must pay tax on any profit you make from renting out property.

Key points to note:

• Rental income includes the rent you get and can also include payments for services you provide (cleaning, hot water, heating or use of furniture).

• If you own more than one property, the profits and losses from all of those properties are added together for tax purposes (for UK properties) when computing your taxable rental profit.

• You must keep accurate records of rent received and expenses incurred.

• You may have the option to use the ‘cash basis’ of accounting if you are eligible; this can simplify matters.

From an accounting point of view, you treat your letting activity as a “property business” for tax purposes (though note it is not always treated like a trading business – different rules apply, especially when you sell).

2. Record-keeping: the foundation of good landlord accounting

Good record-keeping is essential. HMRC sets out clear rules for landlords in “Keeping your pay and tax records: Rental income”.

You should keep records that show:

ü the dates when you let out your property;

ü all rent you receive (including any extra payments for services);

ü any income from services to the tenants (e.g., cleaning or gardening);

ü all receipts, invoices, bank statements and other documentation of expenses;

ü records of mileage if you make business journeys in connection with your letting business.

Failing to keep proper records can lead to penalties or additional tax liabilities. From an accounting perspective you should maintain a ledger of income and expenses, ideally allocated by property if you own more than one.

Additionally:

ü You should separate income and expenditure for each property/business if necessary;

ü Ensure you record the correct date of receipt and date of payment.

Using landlord-specific accounting software or modules can help decisively; this will prove especially important with the upcoming digital filing requirements (see section 6 below).

3. What expenses are allowable and how do you calculate your taxable profits?

When calculating your taxable rental profit you take your total rental income and deduct allowable expenses.

Allowable expenses

Expenses must be “wholly and exclusively” for the purpose of letting the property. Typical allowable expenses include:

ü property maintenance and repairs (not improvements)

ü insurance (e.g., property insurance, landlord liability)

ü letting agent fees

ü accountant fees for the letting business

ü ground rent and service charges (if paid by you)

ü utilities, if you pay them and recharge the tenants

ü general “running costs” of the property business

ü interest on loans (but note there have been restrictions on mortgage interest relief for residential landlords).

Non-allowable (or restricted) items

ü Improvements (capital expenditure) are not deductible as an expense in full – instead they form part of the cost base when you sell (capital gains tax relief).

ü Private domestic expenditure (for example use by you as the owner) is not allowable.

ü Mixed use items must be apportioned fairly.

Calculation of taxable profit

The simple formula:

Gross rental income

– Allowable expenses

= Taxable rental profit (or loss)

If you have multiple properties, the profits/losses are aggregated.

If you incur a loss (expenses exceed income) then you may carry forward that loss to offset against future rental profits.

4. Tax compliance: declaring income, self-assessment and thresholds

Once you have your rental profit or loss, you must report it to HMRC. This typically happens via the Self-Assessment tax return. HMRC says: you must tell HMRC about any taxable profits if you already file a return or if you have been asked to file.

Key thresholds and allowances

• There is a “property allowance” of £1,000 tax-free for property income in some cases. If your property income (after expenses) is more than £2,500 or income before expenses is over £10,000, you must complete Self Assessment.

• The personal allowance and your overall income determine how much income tax you will pay.

Joint ownership / shares

If you own property jointly with another person (spouse, civil partner or other) the share of income you pay tax on depends on your beneficial share of the property.

Losses
If you make a loss, you need to carry it forward properly and claim the deduction in the following year when you have profits. You cannot generally offset a rental loss against your employment income.

5. Specific tax issues for UK landlords

Mortgage interest and finance cost relief

One major change in recent years is the restriction on tax relief for finance costs (mortgage interest) for residential property landlords. The finance cost relief is phased and limited for higher rate taxpayers.

Capital Gains Tax (CGT) on selling a rental property

When you sell a property that is not your main home, you may have a capital gain and may be liable to CGT. You calculate the gain as the difference between buying price and selling price (less allowable costs and improvements) and apply the CGT allowances/rates.

Letting via a company vs. personally

Some landlords operate via a limited company rather than personally. The tax regime changes: corporation tax rather than income tax, different treatment of dividends, etc.

Furnished holiday lettings

If you operate a furnished holiday letting, different rules apply (treated more like a trade). You must check with a professional like whether you qualify.

6. Preparing for the future: Making Tax Digital (MTD) for landlords

The UK tax system is moving to digital reporting. For landlords, this means new obligations for digital record-keeping and periodic updates. The initiative is called MTD for Income Tax (IT).

What landlords need to know

• From 6 April 2026, landlords (and sole traders) with qualifying income above certain thresholds will need to use MTD-compliant software, keep digital records and send quarterly updates to HMRC.

• The threshold is being phased: e.g., income above £50,000 first, then lower thresholds in subsequent years.

• You’ll need to use software recognised by HMRC for MTD.

• This change is important: once mandatory you cannot rely purely on annual Self Assessment filing alone; you must keep digital records and comply with quarterly update obligations.

What you should do now

ü Audit your record-keeping and select MTD-compliant software now (before the mandatory deadline) to smooth the transition.

ü Ensure all your letting income and expenses are captured digitally and ready for quarterly updates.

ü If you use spreadsheets, ensure they can interface via bridging software to the submission process.

ü Review your business structure and anticipate increased administrative burden; plan accordingly.

7. Best practice tips for UK landlord accounting

To keep your landlord accounting robust and compliant in the UK, adopt the following practices:

ü Keep separate ledger/accounts for each property or group of properties.

ü Maintain up-to-date bank statements and reconcile rental income monthly.

ü Record all receipts and invoices for expenses immediately; digitise and store them securely.

ü Classify expenses properly: repairs vs improvements.

ü Review your letting business structure annually – consider whether a limited company is appropriate.

ü Plan for tax: estimate taxable profits early and set aside funds for tax payments (income tax, CGT).

ü Prepare now for the MTD transition: choose software, train staff (if any), and ensure compliance ahead of deadlines.

ü Seek professional advice from a specialist accountant familiar with UK landlord taxation for more complex issues (multiple properties, overseas properties, mixed-use, etc.).

8. Common mistakes landlords make… and how to avoid them

Mistake 1: Incomplete records or missing receipts

Consequence: Loss of allowable expense claims, greater tax liability, and potential HMRC enquiries.

Fix: Stay on top of uploads, reconcile monthly, keep a separate filing system for each property.

Mistake 2: Mis-classifying capital expenditure (improvements) as revenue expense

Consequence: Expense disallowed and tax overpaid; problems when selling property.

Fix: Ensure you understand the distinction: repairs (deductible) vs improvements (capitalised for CGT). Consult your accountant where unsure.

Mistake 3: Ignoring upcoming MTD obligations

Consequence: Unprepared for digital changes, risk of penalties or disruption.

Fix: Start using MTD-compliant software now, review quarterly update processes.

Mistake 4: Not accounting for losses properly

Consequence: Losses not carried forward or incorrectly used, resulting in lost tax relief.

Fix: Track losses each year and ensure they are claimed in subsequent years as appropriate.

Mistake 5: Letting via wrong structure without considering tax implications

Consequence: Higher tax bills, missed opportunities for efficient structure.

Fix: Review whether personal ownership or a limited company is more tax-efficient given your circumstance, size of portfolio, future plans.

9. Summary: why good accounting matters for UK landlords

Effective landlord accounting is not just about compliance with HMRC—it’s about managing your property business as a professional enterprise. By maintaining accurate records, claiming the correct expenses, staying ahead of digital tax filing obligations and structuring your affairs with foresight, you can:

ü reduce your tax liability within the rules.

ü avoid needless HMRC enquiries and penalties.

ü plan for cash-flow and future tax obligations.

ü make informed decisions about your property portfolio (buying, selling, improving, financing).

With the arrival of MTD for Income Tax, the need for good digital record-keeping and regular accounting scrutiny is greater than ever. This is especially true in the UK property market where tax rules have become more complex in recent years.

Final thoughts

If you are a landlord in the UK, adopting sound landlord accounting practices is essential for success and peace of mind. From knowing what counts as rental income, to understanding allowable expenses, calculating taxable profits and preparing for digital tax reporting — every step matters. The key is to be proactive: set up your records, select the right software, keep everything up to date and seek professional advice when needed.

If you would like to make further consultation please contact MNG Accountants Ltd on accountants@mngaccountants.uk or call +447520643891

Top of Form