New HMRC rule this week ‘could send costs up’ | Personal Finance | Finance
Tenants could foot the bill, according to experts (Image: Fabio Camandona via Getty Images)
A new HMRC system that launched this week alongside the new tax year could prove particularly troublesome for one specific group, according to experts. Making Tax Digital (MTD) “will be the tipping point” for many landlords, with experts warning “it will be passed on to tenants in rising rents”.
MTD is now live – a new way for landlords to report income and expenses to HMRC. Many are “simply unprepared” for MTD and “awareness is still incredibly low” among individuals affected, experts have warned. The new system is a UK government initiative aimed at modernising the tax system by requiring landlords to keep digital records and submit tax updates to HMRC using compatible software.
It replaces manual, annual, or paper-based reporting with a digital real-time process and it will be introduced in two phases: from April 2026, for those with qualifying income of more than £50,000 and from April 2027 for those with qualifying income of more than £30,000. Plans to expand it to those with an income of more than £20,000 from 2028 are being finalised.
Experts caution that it will fundamentally reshape Britain’s rental landscape – its consequences could be far-reaching, gradually forcing thousands of smaller, often older, landlords out of the market and restricting the supply of homes at the worst possible time for the country. Tony Fitzpatrick, co-founder of Business111, said MTD was, for many smaller landlords and especially those less comfortable with technology, a step too far.
He added: “Making Tax Digital may look like a technical upgrade, but for thousands of small landlords it represents a real-world tipping point. These are not large-scale investors with systems and support teams – they are individuals, often later in life, managing one or two properties as part of their retirement planning.
HMRC has started a new system (Image: Alamy/PA)
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“When you layer quarterly reporting, software requirements and rising compliance costs onto an already pressured market, the outcome becomes predictable. Some will simply decide it is no longer worth the risk or the effort.
“The concern is not just for those landlords themselves, but for the wider housing system. At a time when demand is rising and supply is already constrained, even a gradual exit of small providers will tighten availability and push rents higher.”
Martin Rayner, director at Compton Financial Services, warned this could prove to be the “tipping point” for numerous landlords.
He added: “Making Tax Digital in isolation is manageable. Most landlords could adapt to it. The issue is that it’s arriving alongside a relentless stream of new pressures. Higher tax through the additional 2% surcharge, the Renters’ Rights Bill making it harder to regain possession or sell, costly EPC upgrades, and expensive licensing schemes in some areas – the list keeps growing.
“Each change on its own may be justifiable, but together they create a constant squeeze on landlords. Whether intentional or not, the direction of travel is clear. It’s becoming harder, more complex, and more expensive to be a landlord.
“Making Tax Digital won’t force an immediate exodus on its own, but it adds to that cumulative pressure and, for many, will be the tipping point. The result is fewer landlords, less rental stock, and ultimately higher rents for tenants.”
Michelle Lawson, director at Fareham-based Lawson Financial, said she anticipated rents for tenants would rise as a consequence.
She added: “The additional costs of all of this for no reason, and when the current system isn’t broken, is yet another financial burden to landlords, which will just be further passed on to tenants in rising rents or result in a property sale and another person waiting for a home.
“Some landlords have had enough with the constant onslaught and strangulation of the sector. Accountants will be further under pressure to assist with more regular reporting and costs will also be passed on to landlords and subsequently tenants.
“There is no winner out of this pointless change and the cost to the taxpayer for its implementation can also not be ignored. A change in isolation is fine, a complete barrage of negativity will breed disharmony.”
However, Steven Greenall, mortgage and protection adviser at Dunmow-based Protect and Lend, argued that landlords ought not to be alarmed by MTD.
He continued: “Making Tax Digital should not be an issue for landlords. It’s just about keeping records online, submitting updates more regularly and staying compliant. Get a process in place early, then it becomes an easy habit.”
