Myths About Declaring Rental Income
Whether you’ve been a landlord for years or have just started letting out a property, it’s essential to understand your tax responsibilities. Unfortunately, there are plenty of myths and half-truths that lead landlords to unknowingly break the rules — or worse, deliberately take the risk.
HMRC takes undeclared rental income very seriously, and with increased access to data, nudge letters, and the Let Property Campaign, it is taking more active steps to find landlords who are not disclosing income properly.
In this article, we’ll clear up some of the most common misunderstandings and explain what to do if you think you might have made a mistake
Common Myths Landlords Still Believe
Myth 1: “HMRC will never find out.”
Many landlords believe that if they only rent to a few tenants or use informal arrangements, HMRC won’t notice. However, this is far from the truth.
HMRC uses a powerful data-matching system called Connect, which pulls in information from a wide range of sources including the Land Registry, local councils, tenancy deposit schemes, letting agents, and even bank data. They also use online platforms like Airbnb and booking websites.
Landlords are also increasingly receiving nudge letters — letters sent by HMRC where they believe you may not have declared rental income. These letters are not random. If you receive one, it is a sign that HMRC has information about you and is giving you a final opportunity to come forward voluntarily before taking more formal action.
Myth 2: “It’s under £1,000, so it’s tax-free.”
This is one of the most common and most misunderstood issues among landlords.
HMRC offers a £1,000 property income allowance each tax year, which means that if your total rental income is less than £1,000 in a tax year, you may not need to report it. However, this only applies to your gross rental income, not your profit after expenses.
If your rental income exceeds £1,000, even by just £1, you may be required to register for Self Assessment and file a tax return.
For landlords earning between £1,000 and £2,500, you must contact HMRC to check if you need to declare it. If your income is above £2,500 after expenses, or over £10,000 gross, you’ll almost certainly need to file a tax return.
Also note that if you choose to use the £1,000 property income allowance, you cannot also deduct actual expenses such as repairs or letting agent fees. You must choose either the allowance or your actual costs, whichever is more beneficial.
In many cases, especially for landlords with mortgage interest or maintenance costs, it is better to use the traditional method of declaring income and expenses.
Myth 3: “I didn’t make a profit, so I don’t need to declare it.”
Even if you made a loss, you are still required to report rental income to HMRC if you’re over the relevant thresholds. In fact, reporting a rental loss can be helpful — it can be carried forward to reduce your tax liability in future years.
Choosing not to declare anything because there is “no profit” is not a valid excuse and could land you in serious trouble.
A Note on Mortgage Interest
One of the most significant changes in recent years is the way mortgage interest is treated for tax purposes.
Previously, landlords could deduct all mortgage interest from their rental income before calculating their tax bill. However, since April 2020, this has changed. Now, mortgage interest relief is given as a 20% basic rate tax credit. This means you can no longer deduct mortgage interest in full as an expense — instead, you receive a tax credit based on 20% of the interest paid.
This change affects higher-rate and additional-rate taxpayers more severely, as they can only claim basic-rate relief, even if they are paying 40% or 45% tax on their income.
It can also create other complications. For example, even though you are not taxed on the mortgage interest, HMRC still uses your gross rental income (before interest) to calculate your total income. This may push you into a higher tax bracket on paper, which can impact things like:
Your personal allowance
Child Benefit entitlement (through the High Income Child Benefit Charge)
Student loan repayments
Savings and pension contribution allowances
Many landlords find themselves unexpectedly paying tax or losing entitlements due to this rule change. It is another reason why getting the figures right — and understanding how HMRC will view them — is so important.
Myth 4: “It’s just temporary, so it doesn’t count.”
Even short-term or one-off lettings count as taxable rental income. Whether you rented to a family member for six months or let your home on Airbnb for a few weekends, you are still required to declare this income if it exceeds the thresholds.
HMRC does not distinguish between “casual” and “formal” lets when it comes to tax.
What Is the Let Property Campaign?
The Let Property Campaign is an HMRC initiative aimed at landlords who haven’t declared rental income in previous years. It offers the opportunity to come forward voluntarily, make a full disclosure, and settle unpaid tax with reduced penalties.
This route is only available if you come forward before HMRC launches a formal investigation or sends a compliance letter.
Disclosures must be complete and accurate, and need to include interest and a reasonable penalty. While this can feel daunting, those who use the campaign correctly often face significantly lower penalties and avoid more serious consequences.
What If I’ve Received a Nudge Letter?
HMRC is increasingly sending “nudge” letters to landlords based on data it receives from third parties. These letters are often headed with phrases such as “We have information suggesting you may have received income from letting property”.
They are not speculative. If you receive one, HMRC is giving you a final opportunity to disclose before they consider launching a compliance check or investigation.
Ignoring the letter can lead to:
Higher penalties (up to 100% of the tax due — or more if offshore property is involved)
Interest charges
A formal tax investigation
Being named as a deliberate defaulter
If you’ve received a letter, speak to a professional straight away — time is often limited, and acting quickly can significantly improve your outcome.
What Should You Do?
If you’re unsure whether you need to declare rental income, or if you think you may have made an error in the past:
Review your income — both current and past years.
Check whether your gross income exceeds the £1,000 allowance.
Consider whether you’ve claimed mortgage interest or expenses correctly.
Seek advice early — the longer you wait, the fewer options you may have.
How We Can Help
We help landlords across the UK bring their tax affairs up to date, whether it’s through the Let Property Campaign or by helping respond to HMRC letters. Our advice is confidential, practical, and focused on getting the issue resolved with the least stress and cost possible.
Whether you:
Need to make a disclosure,
Have received a letter from HMRC,
Or just want peace of mind that your rental income is being declared correctly,
We’re here to help, contact us below or call 01442 828006
