Making Tax Digital for Property

Making Tax Digital for Income Tax (MTD for ITSA) moves self-employed reporting online. It applies from 6 April 2026 to sole traders and landlords with qualifying income over £50,000, from April 2027 at £30,000, and from April 2028 at £20,000. Qualifying income means the rent your properties bring in, added to any self-employment turnover before you take off any expenses — not your profit. That catches a lot of people out: a trade turning over £60,000 and taking home £28,000 is in scope from April 2026, not 2028.

The part that catches landlords out is the word combined. The test is applied to your total qualifying income, so £25,000 of rent and £30,000 from a trade is £55,000 — you are in from April 2026, even though neither source reaches £50,000 alone. Property income and self-employment are added for the threshold, then reported as two separate businesses once you are in.

In practice MTD means keeping digital records of your rents and expenses, sending HMRC four quarterly updates for your property business, and making a final declaration after the tax year that replaces the Self Assessment return you file now. Work your start date out from the rent on your tenancy agreements, not from what is left after the mortgage.

This is the change that reshaped landlord tax, and it is still widely misunderstood. Since April 2020 you can no longer deduct mortgage interest as an expense of a residential letting held in your own name. Instead the interest is added back to your profit, and you receive a tax reduction worth 20% of it — the basic rate.

The arithmetic is what makes it real. Say a property brings in £18,000 of rent, with £3,000 of running costs and £10,000 of mortgage interest. Under the old rules your taxable profit was £5,000. Now the £10,000 interest is added back, so you are taxed on £15,000 and given a £2,000 credit. For a basic-rate landlord the outcome is much the same. For a higher-rate landlord it is not: the £10,000 that once saved £4,000 in tax now saves £2,000, and the added-back profit can even tip you into the higher band. That is the trap — the relief did not disappear, it dropped to a fifth on the pound for anyone paying above the basic rate.

The restriction applies to residential property held by individuals. It does not apply to commercial property, and it does not apply to property held in a limited company, where interest remains a full deduction. That single difference is behind most of the company-versus-personal conversations we have.

For all that they share a tax return heading, the three kinds of landlord in this section are taxed on materially different rules. A residential landlord letting on assured shorthold tenancies lives with the finance-cost restriction above, and the rent is exempt from VAT.

A holiday-let owner used to sit in a separate regime with its own advantages, but the Furnished Holiday Lettings rules were abolished from 6 April 2025. From that date a holiday let is taxed as an ordinary property business: the same finance-cost restriction, no more capital allowances on the furniture, and no special capital gains treatment. If you have run a holiday let for years on the old assumptions, the numbers have changed under you.

A commercial landlord letting to businesses is in a different position again. The finance-cost restriction does not touch commercial property, so mortgage interest stays fully deductible, and VAT becomes a live question through the option to tax. The pages below take holiday lets and commercial property in turn; what every landlord shares is that MTD scope is set by the rent, gross, before any of this is applied.

The expense that causes the most argument is the one that sits on the line between a repair and an improvement. Replacing a broken boiler with a like-for-like boiler is a repair, allowable against your rent. Ripping out a kitchen and fitting a better one is an improvement, which is capital and comes off your gain when you sell, not your rent now. Landlords routinely claim improvements as repairs, and it is exactly the sort of thing an enquiry unpicks.

Furnishings have their own rule. The old wear-and-tear allowance ended in 2016; what you have now is replacement of domestic items relief, which lets you claim the cost of replacing a sofa, a bed or a fridge, but not of buying the first one. Agent fees, insurance, ground rent, service charges and the cost of getting between your properties are all allowable on a fair basis.

Where property is owned jointly, each owner claims their share of every cost against their share of the rent. It is worth setting the split correctly at the outset, because a couple who own equally but report unequally are inviting a question they do not need.

The fear is four tax returns a year. It is not that. A quarterly update is a running summary of your rents and expenses for the period, sent from your software — no tax calculation and nothing to pay on the strength of it. Your property is one business for this purpose, so if you also have a trade you keep two sets of updates rather than one combined figure.

The tax is still settled once, after the year end, through a final declaration that replaces your Self Assessment return, and the payment dates do not move. What changes is that the year is kept straight in four manageable pieces rather than reconstructed each January from a shoebox of agent statements.

One thing to note: MTD for Income Tax is a personal-tax regime, so it does not apply to property you hold through a limited company. A company reports through corporation tax instead. If you own some property personally and some through a company, only the personal lettings fall inside MTD — and we make sure the line between the two is clean.