Property Income & MTD: A Guide for Landlords

How Property Income Is Reported Under MTD

If you receive rental income from UK property, it counts as qualifying income for Making Tax Digital. This means if your property income (alone or combined with self-employment income) exceeds the MTD threshold, you must file quarterly updates.^[4]

What Counts as Rental Income?

Your rental income includes:^[1]

• Rent payments from tenants
• Payments for use of furnishings
• Charges for additional services you provide (e.g. cleaning, laundry)
• Any insurance payouts that compensate for lost rental income

The £1,000 Property Income Allowance

If your total property income is under £1,000 per tax year, it’s automatically tax-free and you don’t need to report it. This is the property income allowance.^[3]

If your property income exceeds £1,000, you can either:

• Deduct the £1,000 allowance instead of actual expenses (useful if your expenses are low), or
• Deduct your actual allowable expenses (usually better if expenses are significant)

You cannot use both methods — choose one or the other.

Allowable Property Expenses

If you choose to deduct actual expenses, you can claim:^[2]

• Letting agent fees and property management costs
• Buildings and contents insurance
• Maintenance and repairs (but not improvements)
• Utility bills (if you pay them, not the tenant)
• Council tax and ground rent (if you pay them)
• Service charges and estate management fees
• Legal fees for lets of a year or less, or for renewing a lease under 50 years
• Accountancy fees relating to rental income
• Advertising for new tenants
• Cleaning costs between tenancies

Replacement of Domestic Items Relief

If you let a furnished or part-furnished property, you can claim tax relief when you replace furnishings:^[1]

• Furniture (beds, sofas, tables)
• Furnishings (curtains, carpets, crockery)
• Household appliances (washing machines, fridges)
• Kitchenware

The deduction is the cost of the replacement item, minus any proceeds from selling the old item. You can only claim for like-for-like replacements, not upgrades.

Mortgage Interest (Finance Costs)

Residential landlords can no longer deduct mortgage interest as an expense. Instead, you receive a tax credit at the basic rate (20%) on your finance costs.^[1]

This means:

• Your rental profit is calculated before deducting finance costs
• You then receive a 20% tax reduction on those finance costs
• Higher-rate taxpayers pay more than under the old system

Jointly Owned Property

If you own a rental property with someone else:^[5]

• Married couples / civil partners: income is split 50/50 by default (unless you formally declare a different split)
• Other co-owners: income is split according to your actual ownership shares
• Each owner reports their share separately on their own tax return
• Under MTD, each owner must file their own quarterly updates for their share

Repairs vs Improvements

This is one of the most common areas of confusion:^[2]

The test: does it restore the property to its previous condition (repair), or does it make it better than before (improvement)? Replacing a broken single-glazed window with double-glazing is treated as a repair if single-glazed windows are no longer available — this is the “modern equivalent” rule.

Filing Quarterly Updates as a Landlord

Under MTD, you report your property income and expenses each quarter through compatible software.^[4] Each update includes:

• Total rental income received in the quarter
• Total allowable expenses for the quarter

If you also have self-employment income, you file separate updates for each income source.

Further Reading

• Allowable Expenses for Self-Employed — if you also have business income
• MTD Income Tax Deadlines — all quarterly dates
• Personal Allowance & Tax Bands — how your rental profit is taxed