Making Tax Digital: 7 tricky questions answered for landlords

More than eight in 10 landlords say they're worried about upcoming changes to how they report rental income to HMRC.

A January survey by rental management app August found that a third described themselves as very worried about the new rules, while just over half said they were a little worried.

The changes relate to Making Tax Digital (MTD) for Income Tax, which will require landlords with certain income thresholds to keep digital records and send quarterly updates, rather than relying solely on an annual self-assessment tax return. Landlords will begin to be brought into the scheme from April 2026.

Here, Which? answers seven questions about how the reporting changes will work, including some of the more technical areas of rental taxation.

1. What's changing for landlords?

Under MTD, if you’re a landlord or sole trader earning more than £50,000 a year, you'll have to file your tax return digitally every quarter and pay the tax owed by 31 January. From the following year, the income threshold will drop to £30,000 before falling again to £20,000 in 2028.  

'Qualifying income’ for MTD and income tax includes the total gross income (turnover before expenses) from all your self-employment and/or property rental sources combined. It doesn't include other income such as PAYE salary, pensions or dividends.

If you earn below the threshold, you can continue using the current self-assessment system. Under that system, you gather all your income and expense records once a year, complete your tax return and pay the tax owed by 31 January.

The main difference is that everything must happen digitally. You'll no longer be able to sort your receipts once a year and manually enter the totals into HMRC’s online portal. Instead, each transaction must be recorded in MTD-compatible software and submitted through digital links.  

• Find out more: get more advice for landlords on our hub.

2. What if my rental earnings change each year?

Once you're required to join MTD, you'll usually remain in the system for as long as you continue trading. If your income dips below the threshold, you can't leave immediately. Instead, you must show that your qualifying income has remained below that limit for three consecutive tax years.

Only after this three-year probationary period of low income can you apply to HMRC for exemption and return to the traditional annual self-assessment filing method. If you stop your business or sell all your rental properties entirely, you don't have to wait three years to leave MTD and you can leave immediately. 

You must notify HMRC that you've stopped trading or are no longer a landlord. It will then deactivate your specific MTD requirements for that income source, although you'll still need to file one final digital tax return to wrap up the year in which you closed. 

However, if your income temporarily drops below the threshold and you continue renting out property, the three-year rule will remain in effect. This is in place to prevent people from repeatedly switching between digital and manual filing based on fluctuating income.

• Find out more: renting a home and what you need to know.

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3. What if I own properties with someone else?

MTD is assessed on the individual, not the property itself. This means your ‘qualifying income’ is simply your personal share of the total rent, plus any other sole trader income you earn. 

For example, if a property portfolio is jointly owned by two people with equal shares and generates £50,000 in gross rent a year, this will be split 50/50 between the owners.

Because of this, one owner could be required to join MTD in 2026 while their co-owner, who has a smaller share or less additional income, may not need to join until the lower thresholds apply in 2027 or 2028.

In a 2025 update, HMRC confirmed that landlords with jointly owned properties can choose to file expenses annually rather than quarterly.

• Find out more: tenancy agreements explained.

4. What if I use a limited company?

Owning property through a limited company is a common strategy for many landlords. Income from properties owned by a limited company isn't included in your personal MTD calculation.

This is because a company is a separate legal entity, and money collected through it is subject to Corporation Tax rules, which aren't currently part of HMRC’s MTD roll-out.

You’ll need to declare and report your company’s rental income through its usual annual accounts and company tax returns. Only the rental income from properties owned in your own name counts toward your ‘qualifying income’ threshold. 

A quick note on VAT: While your limited company stays out of the new income tax reporting rules, if it's VAT-registered, it must already be using MTD-compliant software for its VAT returns. The two systems are separate.

• Find out more: buy-to-let mortgages explained.

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5. Do I have to comply if I live abroad?  

If you live abroad and rent property in the UK, you will need to follow the MTD reporting rules and the Non-Resident Landlord Scheme (NRLS). Under NRLS, your agent deducts 20% tax from your rental income before paying you. 

Every year, you finish your taxes with a Final Declaration by 31 January. This is when HMRC compares the tax your agent already paid for you against what you actually owe. You’ll either get a refund or pay any extra tax you owe. 

The new digital updates will record your income during the year, but the final declaration will continue to determine your overall tax bill.

HMRC has granted a one-year deferral for non-resident individuals. If you live abroad, you won't be required to join MTD until April 2027, even if your income exceeds £50,000.

• Find out more: tenancy agreements explained.

6. What about income from a lodger?

Rental income from a lodger does count towards your qualifying income, but only the portions outside the tax-free allowance provided by the Rent a Room Scheme.

Under this scheme, the first £7,500 of relevant income – £3,750 if the income is shared with someone else – is considered tax-free, so it doesn’t count towards qualifying income.

However, any lodger's income above this threshold is taken into account. For example, if you earn £10,000 from a lodger, you can subtract the £7,500 tax-free allowance, then the remaining £2,500 is added to your other business or rental income.

If your total income is high enough that you must join MTD because of other business, you'll still need to record your lodger income in your digital records, even if the relief covers most of it.

• Find out more: how rental income is taxed.

7. What if I have other self-employment income?

If you have both rental income and a separate sole-trader business, you must add both together to see if you hit the MTD threshold. 

For example, if you earn £35,000 from rent and £20,000 from consultancy, your total is £55,000 – meaning you must join MTD in April 2026.

Each income source is treated as a separate business for reporting, so you can't treat them as small individual businesses to stay under the limit. This means you'll need to submit four quarterly updates for your property business and another four for your consultancy work.

If you also run a separate business, such as a furnished holiday let that's treated as a separate property business, this would require its own set of updates, too. The more qualifying income sources you have, the more quarterly submissions you'll need to make.

• Find out more: buy-to-let mortgage interest tax relief explained.