Being a landlord in 2025 feels harder than ever before. Rental yields have dropped widely, creating an income squeeze that makes every compliance mistake more costly.
HMRC recovered over £107 million from landlord tax investigations last year alone, rental yields are being squeezed by rising costs, and sweeping new regulations are just around the corner. HMRC actually brought in £13,713 in tax per disclosure in 2024/25, by far the highest amount since the campaign’s inception, showing that the tax authority is getting better at targeting non-compliance.
With property ownership details now automatically linked across the Land Registry, letting agents, mortgage lenders, and even Airbnb platforms, there’s little room for error.
For landlords trying to maintain profitability while staying compliant, understanding these seven critical traps could be the difference between a healthy portfolio and a tax nightmare.
1. The 60-Day Capital Gains Reporting Window
One of the most punishing traps catches landlords off guard when they sell a property. When landlords sell a rental or second property, they must report and pay Capital Gains Tax within 60 days of completion. Missing this window remains one of the most damaging tax traps for landlords in 2025, often resulting in daily penalties and accrued interest.
This isn’t like Income Tax where you have until January to sort everything out. The clock starts ticking the moment your property sale completes, and HMRC expects both the report and the payment within two months.
HMRC’s data-sharing with solicitors and conveyancers makes missed declarations easy to detect, so hoping it slips through the cracks isn’t an option.
How Much Will You Pay?
Capital gains tax on property is currently charged at 18% for basic rate taxpayers and 24% for higher rate taxpayers.
With the annual CGT allowance having fallen from £6,000 in 2024 to just £3,000, more landlords than ever are being caught by this tax. The reduced allowance means even modest property gains now trigger substantial tax bills.
Many landlords assume their solicitor will handle everything, but the reporting obligation sits with you. Set a reminder for 50 days after completion, calculate your gain properly by deducting allowable costs like legal fees and stamp duty, and file through HMRC’s Capital Gains Tax on UK Property Account well before the deadline.
2. The Section 24 ‘Phantom Profit’ Problem
Section 24 continues to affect landlord profitability in ways that aren’t immediately obvious.
Since April 2020, landlords can no longer deduct mortgage interest in full. Instead, they get a basic rate tax credit of 20%. For higher-rate taxpayers, this change can be brutal.
Since the phased withdrawal of mortgage interest relief, landlords have faced a fundamental mismatch between economic and taxable profit.
Many landlords now appear profitable on paper, but only because tax law ignores the full cost of debt servicing. This creates a ‘phantom profit’ effect where landlords owe tax on income they never truly received.
The Real Impact on Your Tax Bill
Under the old rules, landlords could deduct all their mortgage interest before calculating rental profit – so they only paid tax on their true profit. Since Section 24 came in, that interest can’t be deducted anymore. Instead, landlords are taxed on the full rental income and only get a 20% credit afterwards.
That means even if your overall profit hasn’t changed, your taxable income is higher, which can push you into a higher tax bracket and increase your total tax bill.
In short:
- Before → interest reduced your taxable profit.
- After → interest no longer reduces your taxable profit, just gives a smaller 20% credit.
The solution for many landlords has been incorporation. By February 2025, there were over 400,000 buy-to-let companies in the UK, up from around 200,000 in mid-2020. Limited companies can still fully deduct mortgage interest as a business expense, avoiding Section 24 entirely.
However, incorporation comes with its own costs including stamp duty on property transfers and potential capital gains tax charges, so get proper advice before making the leap.
3. Making Tax Digital (MTD): The April 2026 Deadline
From April 2026, a new compliance burden lands on landlords’ desks that will fundamentally change how you report rental income.
Making Tax Digital for Income Tax (MTD For ITSA) will become mandatory from 6 April 2026 for sole trader landlords whose combined gross revenue from rent and self-employment was over £50,000 in the 2024-25 tax year.
This means replacing your annual Self Assessment tax return with quarterly digital submissions. Individuals will have to keep digital records of the amount, category and date of income and expenses relating to their property businesses.
Taxpayers within MTD will need to submit a summary to HMRC of their income and expenses each quarter.
Who Needs to Prepare?
The thresholds will gradually reduce. Landlords whose qualifying gross income from rental properties and self-employment is more than £30,000 will need to comply from 6 April 2027.
By 2028, the threshold drops to £20,000, bringing the majority of landlords into the system.
The submissions are due quarterly at fixed deadlines, and there’s no flexibility. Late submissions will trigger a points-based penalty system, with monetary penalties kicking in once you reach a certain threshold.
Start preparing now by moving to HMRC-approved software like Xero, QuickBooks, or landlord-specific platforms. The transition period is shorter than you think.
4. The EPC Time Bomb: New Standards Coming in 2026
Energy Performance Certificates (EPCs) are about to become a much bigger headache than they already are.
While the government originally planned to raise EPC requirements to Band C by 2025 for new tenancies and 2028 for all rentals, these proposals were officially scrapped in September 2023. No Band C deadline is currently in law as of 2025, but that breathing space won’t last forever.
The government published a consultation on 7 February 2025 on its radical proposals that would overhaul the regulations for minimum energy efficiency standards for homes in the private rented sector.
The government is proposing to set higher standards against new metrics planned to be introduced to Energy Performance Certificates following EPC reform in 2026.
What’s Changing?
The proposed new metrics would assess the energy performance of buildings based on fabric performance, smart readiness, and the efficiency and emissions of the heating system, instead of the current energy efficiency method, which is an energy cost metric.
This is a fundamental change. Rather than just looking at estimated running costs, the new system will measure how well your property retains heat through insulation, double-glazing, and draught-proofing.
The government is proposing to increase the minimum EPC requirement for rental properties in England and Wales from E to C. This would apply to new tenancies from 2028 and all existing tenancies from 2030. If you own properties currently rated D or E, now is the time to plan upgrades. Waiting until 2028 means competing for limited contractors when demand spikes.
Forward-thinking landlords are using this window to improve insulation, upgrade boilers, and install LED lighting. Tenants are increasingly demanding energy-efficient homes, with 68% of renters preferring energy-efficient properties. Properties with better EPCs attract higher rents and shorter void periods.
5. Section 21 Abolition and the Renters’ Rights Bill
The biggest shake-up to tenancy law in a generation is almost here. The Renters’ Rights Bill completed its passage through the House of Commons in January, and cleared the House of Lords in July 2025. It’s likely to receive Royal Assent and become the Renters’ Rights Act in October 2025, with the abolition of Section 21 expected to come into force sometime in 2026.
The Renters’ Rights Bill will abolish Section 21 evictions, meaning landlords will no longer be able to serve “no-fault” eviction notices to regain possession of their properties.
All fixed-term assured shorthold tenancies will automatically convert to periodic tenancies overnight. The move to periodic tenancies means Section 13 notices will be the only way for landlords to raise the rent, and these can only be served once per year.
What Landlords Need to Know
Section 8 notices are more complicated than Section 21 notices. Landlords can cite eight mandatory grounds and 11 discretionary eviction grounds to evict tenants from their property. Getting the grounds wrong means your possession claim fails, costing thousands in legal fees and months of lost rent.
The bill will also ban rental bidding wars, meaning landlords and agents can’t accept offers above the advertised price. It will introduce a landlord ombudsman to help resolve disputes between landlords and tenants impartially, and create a private rented sector database designed to compile information about landlords and properties.
6. Damp, Mould and the Decent Homes Standard
Following the tragic death of two-year-old Awaab Ishak, new legislation is forcing landlords to take damp and mould seriously. While from October 2025 social landlords will have to address damp and mould hazards that present a significant risk of harm to tenants to fixed timescales, private landlords shouldn’t assume they’re exempt.
A reformed Decent Homes Standard is expected to extend to the private rented sector. The consultation proposes that properties “are free from damp and mould” beyond the most minor levels.
If damp or mould is rated from Band A to H on the HHSRS scale, the property would not meet the Decent Homes Standard.
The New Zero-Tolerance Method
This goes much further than current law. Instead of only acting when it’s severe, landlords will need to take action for all but minimal traces of mould. Practically, this means landlords must address damp and mould as soon as they become aware of it.
Under the Decent Homes Standard, the onus will be on the landlord to fix root causes. This means improving ventilation such as extractor fans and vents, repairing leaks, upgrading insulation or heating to reduce condensation, and dealing with any penetrating or rising damp problems. Simply telling tenants to open windows won’t cut it anymore.
Proactive landlords are conducting damp surveys now, upgrading ventilation systems, and documenting everything. When damp complaints come in, respond within days, not weeks. The reputational and legal consequences of ignoring mould have never been higher.
7. Misclassifying Repairs as Improvements
The line between a repair and an improvement seems straightforward until you’re spending money on your property. Get it wrong, and you could face penalties for incorrectly claiming expenses or overpay tax by not claiming what you’re entitled to.
Painting and maintenance are deductible, but adding an extension or upgrading a kitchen beyond its original standard is not.
Misclassifying these can bring penalties. The key test is simple: does the work restore the property to its original condition, or does it enhance it beyond what was there before?
Understanding the Difference
Expenditure on a repair is revenue in nature and deductible when calculating the profits of the property rental business. A repair is the restoration of an asset by replacing part of that asset, normally putting the property back in its original condition:
- Replacing broken roof tiles
- Fixing leaky pipes
- Repainting walls
- Replacing a broken boiler with a like-for-like model
Improvements, on the other hand, add value or enhance the property. Installing a new extension, converting a loft, or significantly upgrading a kitchen beyond its previous standard all count as capital expenditure.
The safe option? Keep detailed records with photos and invoices showing what was there before and what you replaced it with. If you’re replacing like-for-like, you’re usually fine. If you’re upgrading substantially, treat it as capital expenditure.
Don’t Face These Challenges Alone
Tax and regulatory compliance for landlords has become a specialist field. The rules change frequently, penalties are severe, and the digital systems HMRC uses to detect non-compliance are only getting more sophisticated.
Whether you’re worried about quarterly digital submissions, unsure whether to incorporate your portfolio, need to plan for EPC upgrades, or simply want to ensure you’re claiming every allowable expense while staying fully compliant, Double Point‘s chartered accountants specialise in landlord taxation and compliance.
We help property investors structure their portfolios tax-efficiently, file accurate returns, handle new regulations, and avoid the traps that cost thousands of pounds in penalties and overpaid tax.
Book a free consultation with Double Point today to discover how we can help you stay ahead of the changes and protect your rental income.