HMRC has recovered more than £104 million in unpaid tax from landlords during the 2025/26 tax year, highlighting its increasing use of property data to identify undeclared rental income.

According to figures obtained by accountancy firm Price Bailey, more than 11,500 landlords voluntarily disclosed previously undeclared rental income through HMRC’s Let Property Campaign – the highest number seen since 2018/19. On average, each disclosure resulted in a payment of just over £9,000.

HMRC Is Using More Data Than Ever

HMRC is now routinely cross-checking information from the Land Registry and other sources to identify individuals who own multiple residential properties. Where discrepancies are found, landlords may receive a ‘nudge letter’ encouraging them to review their tax affairs and voluntarily correct any omissions before formal investigations begin.

While many landlords deliberately comply with their tax obligations, others may be unaware they have taxable rental profits, particularly those who have:

  • Inherited a property.
  • Moved in with a partner but retained their previous home.
  • Temporarily relocated while letting out their property.
  • Become accidental landlords through changing circumstances.

Common Areas Where Mistakes Occur

One of the most frequent areas of confusion is the difference between repairs and capital improvements.

For example:

  • Replacing an existing kitchen with a similar specification is generally considered a repair and may be tax deductible.
  • Installing a significantly higher-specification kitchen may be treated as a capital improvement, meaning different tax rules apply.

Getting this distinction wrong can result in unexpected tax liabilities.

Tax Rules Continue to Change

The tax landscape for landlords has become increasingly complex over recent years.

Key changes include:

  • Making Tax Digital for Income Tax now applies from April 2026 for landlords and sole traders with combined property and self-employment income above £50,000, with the threshold reducing to £20,000 from April 2028.
  • The Capital Gains Tax annual exemption has reduced to £3,000.
  • Residential property disposals remain subject to higher CGT rates.
  • Limited company landlords continue to pay Corporation Tax at rates between 19% and 25%, depending on profits.

The ‘Phantom Profit’ Problem

Many landlords continue to be affected by what accountants describe as ‘phantom profit’.

Since mortgage interest tax relief was restricted, some landlords can find themselves paying income tax despite generating very little actual cash profit after mortgage payments. This often comes as a surprise and remains one of the main reasons landlords fall behind with their tax obligations.

Our Advice

Although Littlefairs cannot provide tax advice, we strongly recommend that all landlords ensure their rental income is properly declared and that they seek guidance from a qualified accountant if they are unsure of their position.

HMRC’s ability to identify undeclared rental income is becoming increasingly sophisticated, making it more important than ever to keep accurate records and remain compliant with current legislation.

If you’d like to discuss how we can help you maximise the performance of your investment property while ensuring your records remain organised, our team is always happy to help.