HMRC has access to more information about landlords and rental properties than many people realise.
It is increasingly using third-party data alongside the information submitted on tax returns to identify landlords whose declared property income may not match the information HMRC holds.
Landlords may receive a letter from HMRC asking them to check whether all of their rental income has been correctly declared.
If you receive one, it is important not to ignore it.
At A&C Chartered Accountants, we explain what HMRC is looking for, what landlords should check and what to do if you discover that rental income has not previously been declared.
How does HMRC know about rental income?
HMRC has extensive data-gathering powers and receives information from a range of third parties and statutory reporting systems.
This can include information connected with letting agents and other organisations involved with property and rental transactions.
HMRC can compare information from these sources with the figures taxpayers have reported.
If the information does not appear to match, it may prompt HMRC to contact the landlord and ask them to review their tax position.
For landlords, this makes accurate record keeping and complete reporting increasingly important.
What should you do if you receive a letter from HMRC about rental income?
The first thing is not to panic, but don’t ignore the letter either.
Receiving a letter does not automatically mean that you have deliberately done anything wrong.
However, you should review your tax affairs carefully and respond within any deadline given by HMRC.
This may involve checking:
- rental income received during the relevant tax years
- expenses claimed against your property income
- information previously included on Self Assessment tax returns
- jointly owned properties and how income has been reported
- income from more than one rental property
- income from short-term or holiday lets
- overseas property income
- whether any rental income has accidentally been omitted.
If your records show that everything has been declared correctly, you may still need to respond to HMRC using the instructions provided in its correspondence.
What happens if you haven’t declared rental income?
If your review identifies rental income that should previously have been reported, it is important to deal with it properly.
HMRC operates the Let Property Campaign, which allows individual residential landlords with previously undisclosed property income to bring their tax affairs up to date.
Depending on the circumstances, you may need to calculate the tax owed for earlier years together with any applicable interest and penalties.
HMRC states that landlords with undisclosed rental income should tell HMRC about unpaid tax rather than waiting for HMRC to discover it.
The exact approach will depend on why the income was not declared and the individual circumstances involved.
Could landlords face penalties for undeclared rental income?
Potentially, yes.
The amount of any penalty can depend on factors including why the tax was underpaid and how the disclosure is made.
This is one reason landlords should not simply wait to see whether HMRC takes further action.
If you realise that rental income has not been correctly declared, getting professional advice at an early stage can help you understand the appropriate way to correct your tax position.
What is the HMRC Let Property Campaign?
The Let Property Campaign is an HMRC disclosure facility aimed at individual landlords who need to disclose unpaid tax relating to residential property income.
It can apply to different types of landlords, including those who rent out one property or several properties.
The process involves notifying HMRC that you intend to make a disclosure and then calculating the amount of tax owed.
HMRC currently requires the disclosure and payment to be made within 90 days of receiving its acknowledgement of your notification.
If you think you may have undeclared rental income, it is important to understand the process before making a disclosure.
A&C Chartered Accountants can review your circumstances and help establish what information needs to be provided to HMRC.
Don’t forget Capital Gains Tax when selling a rental property
Rental income isn’t the only tax issue landlords need to consider.
If you have sold or otherwise disposed of a rental property, there may also be Capital Gains Tax implications.
The tax position will depend on factors including how much you originally paid for the property, the disposal proceeds, allowable costs, available reliefs and your individual circumstances.
HMRC correspondence relating to your property affairs should therefore be an opportunity to review your wider tax position rather than looking solely at rental income.
Making Tax Digital is another major change for landlords
Landlords also need to consider whether they are now required to use Making Tax Digital for Income Tax.
MTD for Income Tax became mandatory from 6 April 2026 for qualifying sole traders and landlords with qualifying income above £50,000, based on their 2024/25 tax return.
The threshold will then reduce:
- from April 2027 to qualifying income above £30,000
- from April 2028 to qualifying income above £20,000.
Qualifying income broadly includes gross income from self-employment and property before expenses.
If you have both self-employment and property income, the amounts are combined when determining whether you exceed the relevant threshold.
This means many more landlords will be brought into Making Tax Digital over the next two years.
What records should landlords be keeping?
Good record keeping is becoming increasingly important.
Landlords should maintain clear records of their rental income and property-related expenditure, together with supporting documents where appropriate.
If you fall within Making Tax Digital, you will also need to meet the relevant digital record-keeping requirements and use compatible software.
Keeping your property finances organised throughout the year makes it much easier to prepare accurate tax information and respond to HMRC if questions arise.
Can HMRC find out that you are a landlord?
Landlords should not assume that HMRC only knows about a property if they declare it themselves.
HMRC has legal powers to obtain information from third-party data holders and uses a range of information to identify potential non-compliance in the property sector.
The safest approach is therefore simple: make sure all taxable property income is correctly reported and deal with any historic errors as soon as they are identified.
Received an HMRC letter about rental income? A&C Chartered Accountants can help
Receiving an HMRC letter can be worrying, particularly if you are unsure why you have been contacted or whether your previous tax returns were correct.
Don’t ignore it and don’t rush into responding before you understand your position.
A&C Chartered Accountants can review your rental income, previous tax returns and the information requested by HMRC to establish what action needs to be taken.
Where income has not previously been declared, we can also advise on the appropriate disclosure process and help you bring your tax affairs up to date.
If you have received an HMRC letter relating to your rental property or are concerned that you may have undeclared rental income, contact A&C Chartered Accountants as soon as possible.
This article is intended as general information only and does not constitute tax advice. The correct tax treatment will depend on individual circumstances and tax rules and HMRC guidance can change.