5 Biggest Myths New Landlords Fall For!

The worst myth is the idea that you do not have to tell HMRC about your rental earnings if it is minimal. Most landlords think that if they only have one or two properties rented out or if the amount they’re earning from the properties is low, HMRC will never know. But this is not true.

Yes, if your rental income before expenses is less than the £1,000 property allowance, you do not need to report it to HMRC. However, if your gross rental income is under £10,000 or your net income (after expenses) is below £2,500, you should still contact HMRC to confirm your tax position.

If your income exceeds either of those thresholds, you are required to file a Self Assessment Tax Return to report your rental income and related expenses.

Please note that mortgage interest is no longer treated as a deductible expense from rental income. For example, if your rental income is £8,000 and you pay £10,000 in mortgage interest, you might assume there's no taxable income to report. However, this is not correct. Only certain allowable expenses, such as repairs, maintenance, letting agent fees and insurance, can be deducted. Mortgage interest is instead given as a basic rate tax credit (we will see more of that in the following section).

HMRC increasingly crossmatches data from lettings agents, the Land Registry and even websites like Airbnb. If you're found non-compliant, you could be hit with penalties, interest and also an investigation. If you think you need to report but haven’t done so for a rather long time, you can voluntarily come forward under the Let Property Campaign, usually at lower penalties.

Another common myth is that if the rental income only covers your mortgage, you will not be taxed. Many landlords are caught out by this one, believing no profit is no tax. But HMRC does not exclude the repayment of your mortgage when calculating your taxable profits. Only the interest component of the mortgage (and not the capital repayments) is considered and even that is capped under Section 24 rules.

Since April 2020, you can no longer claim mortgage interest as an expense in full if you're a landlord. You're instead given a basic rate (20%) tax credit on the interest. What this does is even when you feel you're "breaking even," your tax bill can be huge. We see landlords repeatedly stunned at how much they owe simply because they had no idea how their rental income was taxed.

The third myth you usually hear is that it's just fine to use a personal bank account for rental income. While it might be convenient, commingling personal and rental transactions leads to messy records, accounting errors and a higher risk of non-compliance. The larger your portfolio becomes, the worse it gets. Though it's not currently an obligatory law that one must have a second bank account, it is highly recommended, especially with the upcoming introduction of Making Tax Digital (MTD).

From April 2026 onwards, landlords with over £50,000 combined property and self-employment income will be mandated to store their records digitally and file quarterly through HMRC-approved software. Having your rental activity in a distinct bank account makes this easy and keeps your accounts in order and compliant.

Another myth is one that's perpetuated between couples, that if property is held jointly, only one of them must report the income. In reality, both owners will be taxed on their share of the rental income, and both of them will have to report it individually on their Self Assessment Tax Return.

For married couples and civil partners, rental income is automatically split 50/50 for tax purposes unless you’ve formally declared a different ownership share using Form 17 and a deed of trust. For unmarried couples, friends or siblings, the tax position follows the actual ownership share. Failing to report your correct share can result in under-declared income and trigger penalties. We prefer to help clients arrange joint ownership in a tax-efficient way and ensure everyone receives accurate reporting.

Finally, and perhaps the most costly myth of all, is that you can get around the legal and tax aspects later. Some landlords rush to complete a property purchase and let it out in a rush, only to awaken months later to discover they've left key structuring choices behind.

Unless you plan, you might pay too much tax, miss out on relief or break the law. You need to consider, in advance, whether you should hold the property personally or through a company, which SDLT band you fall into, the deadline to apply for UTR to file your return, whether you need a landlord's licence in your area and whether you need to serve the correct notices on tenants.

We’ve seen landlords face serious issues like invalid tenancy agreements or missed tax deadlines simply because they didn’t plan. Getting things right at the start is far more cost-effective than untangling mistakes later.