Industry guidance
HMRC Enquiry Help for Landlords
HMRC enquiry guidance for landlords covering rental income, allowable expenses, mortgage interest relief and property disposals.
At a glance
- Data from letting agents and property portals makes undeclared rental income increasingly easy for HMRC to identify
- Mortgage interest relief for residential lettings is now given as a tax credit, not a full expense deduction
- Selling a rental property triggers a 60-day CGT reporting and payment deadline
- The Let Property Campaign offers better terms for landlords who disclose voluntarily
- Company-owned property portfolios involve different tax rules to personally-owned lettings
- Incorporation relief claimed on transferring property into a company needs to have genuinely applied at the time
Landlords are one of the groups HMRC has increasingly focused on in recent years, partly because of data-sharing agreements with letting agents, mortgage lenders and property portals that make undeclared rental income easier to spot. A typical enquiry examines whether all rental income has been declared, whether claimed expenses were genuinely incurred wholly for the property business, and whether the restriction on mortgage interest relief for residential lettings has been applied correctly. Landlords with several properties, or a mix of furnished holiday lets and standard lettings, often face more detailed questions because the tax treatment differs between categories.
Capital Gains Tax on the sale of a rental property is another common trigger, particularly where the 60-day reporting and payment deadline was missed or the private residence relief calculation is disputed. Landlords who have not previously declared rental income can use HMRC's Let Property Campaign, which offers a structured route to disclose past income on more favourable terms than waiting to be found through an enquiry.
Where an enquiry does open, HMRC typically works property by property, checking rental income against tenancy agreements, bank deposits and any letting agent statements, before moving on to test whether claimed expenses were genuinely revenue in nature rather than capital improvements that should instead be added to the property's cost base for Capital Gains Tax purposes. Distinguishing repairs from improvements is a frequent area of dispute, since replacing a boiler like-for-like is treated differently from adding an extension or converting a loft.
Landlords holding property through a limited company face a different set of considerations again, since Corporation Tax rules, director's loan account treatment, and the interaction between company and personal tax positions add complexity that doesn't arise for individually-owned property. Where a portfolio has been incorporated part-way through ownership, HMRC may also look closely at whether Capital Gains Tax reliefs claimed on the transfer into the company were properly available at the time.
Tax areas most relevant to landlords
- Rental income and expense records
- Mortgage interest relief restriction
- Capital Gains Tax on property disposals
- Furnished holiday let qualifying conditions
- Let Property Campaign disclosures
- Corporation Tax treatment for company-owned property portfolios
- Capital Gains Tax reliefs on incorporating a property business
How to prepare
A structured, evidence-led approach from the outset tends to produce a faster and less stressful outcome than responding to each request as it comes in.
- 1
Pull together income and expense records property by property, not combined across a portfolio
- 2
Separate repairs and maintenance from capital improvements clearly
- 3
Recalculate the mortgage interest relief restriction correctly for the years in question
- 4
Gather completion statements for any properties bought or sold in the period
- 5
Check whether any furnished holiday let claimed qualifying conditions are properly evidenced
- 6
If property is held through a company, check the Corporation Tax and director's loan account position
- 7
Review any incorporation relief claimed on transferring property into a company structure
What documentation to gather
- Rental income records for each property, including any managing agent statements
- Expense receipts and evidence they relate wholly to the rental business
- Mortgage interest and finance cost records for the relevant tax years
- Completion statements for any properties bought or sold
- Records supporting any furnished holiday let qualifying conditions claimed
- Company accounts and director's loan account records, if property is held through a company
- Documentation supporting any incorporation relief claimed on transferring property into a company
Common mistakes to avoid
These are the errors we see most frequently in this sector — being aware of them in advance can help you avoid an entirely preventable dispute with HMRC.
Treating capital improvements as revenue repairs to claim an immediate deduction
Combining income and expenses across a whole portfolio instead of keeping it property by property
Missing the 60-day deadline for reporting and paying Capital Gains Tax after a property sale
Claiming full mortgage interest as an expense rather than applying the correct relief restriction
Assuming a furnished holiday let automatically qualifies without checking the occupancy conditions
Treating company-owned property the same as personal property for tax purposes
Assuming incorporation relief automatically applied without checking the specific conditions at the time
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What happens next
Knowing the typical sequence of events helps you feel more in control and know roughly what to expect at each stage.
HMRC reviews income and expenses property by property against supporting records
Any repairs versus improvements distinction is checked, along with the relief restriction calculation
You may be asked to clarify specific transactions or provide further evidence
HMRC proposes any adjustment, which you can accept, negotiate, or dispute
The Let Property Campaign remains available for voluntary disclosure ahead of a formal enquiry
Where property is company-owned, HMRC reviews the Corporation Tax and director's loan position alongside personal tax
Any incorporation relief claimed is checked against the conditions that applied at the time of transfer
Frequently asked questions
The questions we're asked most often by businesses in this sector, answered in plain English.
Do I need to declare rental income if I make a loss?
Yes — rental income and expenses generally need to be reported even if the result is a loss, since losses can often be carried forward against future rental profits, and HMRC still expects the position to be declared.
What is the Let Property Campaign?
It's an HMRC disclosure facility for landlords who haven't declared rental income in the past. Using it proactively is generally treated more favourably than being identified through an enquiry.
How does HMRC find out about undeclared rental income?
Common sources include data from letting agents, mortgage lenders, the Land Registry, and increasingly property listing platforms, all of which HMRC can cross-reference against tax returns.
What's the difference between a repair and an improvement for tax purposes?
A repair restores something to its previous condition, like replacing a broken boiler with an equivalent one, and is usually an allowable revenue expense; an improvement, like adding an extension, is capital and instead reduces the gain when the property is eventually sold.
What happens if I miss the 60-day CGT reporting deadline?
A penalty can apply for late reporting, in addition to any interest on late payment, so it's worth reporting even if you're still finalising the exact figures.
Do furnished holiday lets get better tax treatment than standard lettings?
They have historically been treated differently in some respects, but only if strict occupancy and letting conditions are met and properly evidenced, so it's worth checking the qualifying conditions carefully each year.
Is it better to hold rental property personally or through a company?
It depends on individual circumstances including tax rates, mortgage interest treatment and long-term plans, and is worth discussing with a specialist before restructuring an existing portfolio.
What is a director's loan account and why does it matter for landlords?
It tracks money owed between a director and their company, and can create its own tax charge if it's overdrawn at the company's year end, which is relevant for landlords operating through a company.
Can I transfer a property into a company without triggering a tax charge?
Generally a transfer is treated as a disposal for Capital Gains Tax purposes, though certain reliefs may apply in specific circumstances, so this needs careful advance planning.
Does HMRC treat furnished holiday lets differently from long-term rentals in an enquiry?
Yes, since the qualifying conditions and some of the available tax treatments differ, an enquiry into a furnished holiday let will typically test those specific conditions rather than assuming standard letting rules apply.
Do I need to register for Making Tax Digital as a landlord?
Landlords with property income above the relevant threshold are being brought into Making Tax Digital for Income Tax, so it's worth checking the current thresholds and timetable that applies to your situation.
Can I claim for a new kitchen or bathroom in a rental property?
It depends on whether the work is a like-for-like replacement, generally an allowable repair, or a genuine improvement beyond the original standard, which would usually be treated as capital instead.
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