Being a landlord has never been more complex, as we are sure you can attest if you happen to be one.Â
Between tax rules, regulations coming at you from all angles, and HMRC’s increasingly sophisticated enforcement measures, there are more ways than ever to accidentally find yourself on the wrong side of the law.
What’s particularly frustrating is that many of these traps catch out perfectly honest landlords who simply weren’t aware of the requirements.
The stakes are higher than ever too. HMRC is cracking down on landlords, imposing higher penalties and utilising data analytics to hunt down those who pay too little tax or avoid it altogether.Â
Here are the seven most common compliance and tax traps that are catching landlords out right now, and more importantly, how to avoid them.
1. Making Tax Digital (MTD) Trap
The Problem: Making Tax Digital (MTD) for Income Tax is rolling out, and many landlords are completely unprepared for what this means.
The rollout of Making Tax Digital for Income Tax is set for April 2026 for those earning over £50,000 (gross, not profit). This means you will be required to keep and submit digital records of your income and expenses to HMRC. You must report your rental income quarterly and not just once a year.
By 2028, this will affect many landlords who rent only single properties – a significant percentage of the country’s 2.82 million landlords.
Why It’s a Trap: Most landlords are still thinking in terms of annual self-assessment returns. The shift to quarterly digital submissions represents a fundamental change in how you’ll need to manage your rental income records. MTD also introduces its own points-based regime, similar to VAT, with penalties for late submissions.
How to Avoid It: Start preparing now, even if you’re not immediately affected. Invest in HMRC-approved accounting software and begin digitising your record-keeping processes. Don’t wait until the last minute – the learning curve is steeper than you might expect.
Read our MTD for landlords guide here.
2. The Undeclared Income Trap
The Problem: HMRC’s data-matching skills have become frighteningly sophisticated, and they’re using this technology to identify landlords with undeclared rental income.
Since January 2025, platforms such as Airbnb, Booking.com, and Vrbo have been legally required to share host income data with HMRC. If you’ve been renting out properties through these platforms without declaring income, HMRC already has the data. They’re also using sophisticated artificial intelligence and data-matching technology to cross-check rental income declarations against Land Registry records, mortgage data, bank transactions, and tenancy deposit schemes.
Why It’s a Trap: Many landlords assume they can fly under the radar, especially with smaller amounts of rental income or occasional Airbnb lettings. This assumption is now dangerous. HMRC has recently used such third-party data to identify individuals and companies who appear to have understated their income or gains, including using data from tenancy deposit schemes to target landlords.
How to Avoid It: Declare everything. If you’ve got undeclared rental income, consider using the government’s Let Property Campaign, which allows landlords to voluntarily disclose unpaid rental income and receive lower penalties than if HMRC finds out first. The penalties for being discovered can range from 10% to 100% of the unpaid tax.
3. The Mortgage Interest Relief Trap
The Problem: The rules around claiming mortgage interest relief have changed, but many landlords are still applying the old rules or missing out on the relief they’re entitled to.
Since April 2020, landlords can no longer deduct mortgage interest as a business expense. Instead, they receive a tax credit equal to 20% of their mortgage interest payments. For higher and additional rate taxpayers, this change has been particularly painful because the 20% tax credit doesn’t fully compensate for the lost ability to deduct mortgage interest at their top tax rate of 40% or 45%.
Why It’s a Trap: Many landlords either don’t understand the new system or are making errors in their calculations. Some are still trying to deduct mortgage interest as an expense, while others are failing to claim the tax credit properly. Both mistakes can lead to incorrect tax returns and potential penalties.
How to Avoid It: Make sure you understand how the current system works. Report your mortgage interest payments in Box 44 of the SA105 form, and let HMRC apply the 20% tax credit automatically. Consider whether incorporating your rental business might be beneficial if you’re a higher-rate taxpayer, though this requires careful professional advice.
4. The Right to Rent Trap
The Problem: The Right to Rent requirements are complex and the penalties for getting them wrong are severe.
Sanctions imposed as part of the Immigration Act 2014 mean that landlords must check that a tenant can legally rent their property before commencing with a tenancy. Unlimited penalties and even prison sentences can be issued to those found not adhering to the landlord legislation and regulations.
Why It’s a Trap: The requirements are detailed, and the acceptable documents list can change. Since May 2025, landlords must also carry out Anti-Money Laundering (AML) checks on tenants to ensure compliance with new regulations. Many landlords either skip these checks entirely or don’t follow the proper procedures.
How to Avoid It: Always conduct proper Right to Rent checks before any tenancy begins. Keep copies of documents for at least 12 months after the tenancy ends, and ensure you understand when follow-up checks are required for people with time-limited right to rent. The guidance sets out the specific actions they can take to prevent liability for a civil penalty – follow it precisely.
5. The EPC and Energy Efficiency Trap
The Problem: Energy Performance Certificate requirements are becoming stricter and the penalties for non-compliance are increasing.
Currently, all rental properties must have an EPC rating of at least E. However, the government is proposing to make radical changes to the way in which the energy efficiency of homes in the private rented sector is assessed, requiring landlords to improve the energy efficiency of their properties to the equivalent of EPC C from the current minimum of an E rating, with implementation potentially starting in 2028.
Why It’s a Trap: Many landlords are caught out by expired EPCs or properties that slip below the minimum E rating. The financial penalties depend on how long the breach had continued prior to the date of the service of the penalty notice: Less than three months: maximum penalty is the greater of £5,000 or 10% of the rateable value of the property, up to a maximum of £50,000.
How to Avoid It: Keep track of when your EPCs expire – they’re valid for 10 years. If your property is rated F or G, you cannot legally let it unless you have a valid exemption. Start planning now for the potential move to EPC C requirements, as the costs involved can be substantial.
6. The Overseas Landlord Trap
The Problem: Non-resident landlords face additional compliance requirements that many don’t understand or ignore entirely.
A landlord with a rental property in the UK but with their usual home outside of the UK will need to sign up to the Non-Resident Landlord (NRL) scheme. This applies to all landlords who live outside of the UK for 6 months or more per year.
Why It’s a Trap: The NRL scheme has specific procedures and deadlines. You need to either have tax deducted at source or apply for approval to receive rent in full and handle the tax yourself through self-assessment. Failure to comply with overseas landlord tax regulation can result in significant fines.
How to Avoid It: If you spend more than six months a year outside the UK, register for the NRL scheme immediately. Decide whether you want to handle the tax yourself (requires form NRL1i approval) or have it deducted at source. Don’t assume this doesn’t apply to you – HMRC’s definition of residence can catch people out.
7. The Deposit Protection Trap
The Problem: Tenant deposit protection rules are strict, and the penalties for non-compliance can prevent you from evicting tenants even when you have legitimate grounds.
All tenant deposits must be protected in a government-approved scheme within 30 days of receipt, and you must provide tenants with prescribed information about the protection. Failure to comply can result in fines and invalidate eviction notices.
Why It’s a Trap: Some landlords forget to protect deposits, protect them late, or fail to provide the required information to tenants. Others assume that because they’re using a letting agent, the deposit protection is handled automatically – but the responsibility ultimately lies with the landlord.
How to Avoid It: Always protect deposits within 30 days and provide the prescribed information immediately. Even if you’re using an agent, confirm in writing that they’re handling deposit protection on your behalf. Remember that failure to comply properly can result in penalties of fines up to three times the deposit value and limitations on eviction under Section 21.
How Double Point Helps Landlords
At Double Point, we specialise in helping landlords navigate this increasingly complex compliance landscape. Our team of chartered accountants stays current with all the latest requirements and changes, from the MTD rollout to the nuances of mortgage interest relief calculations.
We don’t just handle your tax returns – we provide year-round guidance to help you avoid these compliance traps before they become expensive problems. Whether you’re dealing with undeclared income issues, struggling with the new mortgage interest rules, or trying to prepare for MTD, we can provide the expert support you need.
Why not book a consultation with us today to discover how we can help you stay on the right side of all these requirements while maximising your tax efficiency?