MTD for Landlords: Rental Income Under Making Tax Digital

Making Tax Digital for Income Tax Self Assessment (MTD ITSA) launches on 6 April 2026 and it hits UK landlords in a significant way. If you rent out property in the UK and your gross rental income exceeds £50,000 in the 2024/25 tax year, you must comply with MTD ITSA from April 2026, filing quarterly submissions instead of the traditional annual Self Assessment. This affects buy-to-let landlords, holiday let operators, HMO landlords, and anyone with significant rental income.

The rules are complex because rental income under MTD interacts with Section 24 mortgage interest restrictions, joint ownership, portfolio structuring, property allowance, and the choice between cash basis and accruals. This guide explains everything landlords need to know: when MTD hits you, how quarterly reporting works for property income, common landlord scenarios, and how to prepare properly.

Written by ICAEW chartered accountants who advise UK landlords on MTD ITSA preparation and property tax planning daily.

Which Landlords Are Affected by MTD ITSA?

MTD ITSA phases in over 3 years based on gross rental income:

Important: The threshold is GROSS rental income (before expenses, before mortgage interest, before agent fees). A landlord with £52,000 gross rent and £45,000 of expenses still falls under MTD ITSA from April 2026 because gross income exceeds £50,000. This catches many more landlords than they realise.

What Counts as ‘Qualifying Rental Income’ for MTD?

Included in the Threshold

•       Buy-to-let residential rental income (gross rent before expenses)
•       Commercial property rental income
•       HMO (House in Multiple Occupation) rental income
•       Furnished Holiday Let (FHL) income (rules being phased out from April 2025)
•       Holiday let and Airbnb income
•       Rent-a-room income above the £7,500 tax-free threshold
•       Ground rent and service charges you receive as landlord
•       Overseas property rental income (UK residents only)

Also Adds to the Threshold

•       Self-employment income from any trade or profession
•       Both income types combined against the same threshold

NOT Included

•       Rental income received by a limited company (falls under future MTD Corporation Tax)
•       Interest, dividends, and other investment income
•       Employment income
•       Capital gains from property sales

Combined income catch: A landlord with £35,000 rental income AND £20,000 freelance income has combined qualifying income of £55,000 (over the £50,000 threshold). MTD ITSA applies from April 2026 to BOTH income sources. This catches many landlords who also do some freelance or consultancy work on the side.

How Quarterly Reporting Works for Landlords

Under MTD ITSA, landlords must submit quarterly updates plus an annual Final Declaration. Property income is reported separately from any self-employment income.

Quarterly Submission Content

•       Total rental income received in the quarter (across all properties)
•       Total rental expenses paid in the quarter (across all properties)
•       Summary of income and expenses by category
•       No individual property-by-property breakdown required at quarterly level

Standard Quarter Dates for Property Income

Property Income Categories to Track

•       Rent received (main income category)
•       Premiums for lease grants (short leases)
•       Other property-related income
•       Mortgage interest (restricted for residential BTL, see Section 24 below)
•       Property agent fees and management fees
•       Repairs and maintenance (revenue expenses)
•       Insurance premiums
•       Utility bills you pay as landlord
•       Council tax where you pay
•       Ground rent and service charges paid
•       Legal and professional fees
•       Replacement of Domestic Items relief

Section 24 Mortgage Interest and MTD

Section 24 (introduced 2017 to 2020) restricts mortgage interest relief for residential buy-to-let landlords. Under MTD ITSA, Section 24 mechanics continue but the quarterly reporting requires you to track them carefully.

How Section 24 Works Under MTD

•       Mortgage interest is NOT deducted as an expense from rental profit
•       Instead, a 20% tax reducer is applied to the mortgage interest amount
•       Rental profit for tax purposes is HIGHER than the actual profit after interest
•       The 20% reducer provides basic-rate relief on mortgage interest
•       Higher-rate and additional-rate landlords effectively get less relief than pre-2017

Section 24 Example

A higher-rate BTL landlord with:

•       Rental income: £24,000 per year
•       Non-interest expenses: £6,000 per year
•       Mortgage interest: £14,000 per year

Pre-Section 24 tax calculation:

•       Rental profit: £24,000 – £6,000 – £14,000 = £4,000
•       Tax at 40%: £1,600

Post-Section 24 (current) calculation:

•       Rental profit: £24,000 – £6,000 = £18,000 (interest NOT deducted)
•       Tax at 40%: £7,200
•       Less 20% reducer on £14,000 interest: £2,800
•       Net tax: £4,400 (£2,800 more than pre-Section 24)

Section 24 impact: The same landlord pays £2,800 more tax under Section 24 rules. Under MTD ITSA, you must track mortgage interest separately from other expenses and apply the reducer at the annual Final Declaration stage. Quarterly submissions include the mortgage interest amount but the tax reducer is calculated annually.

Joint Ownership and MTD ITSA

Joint Tenants (Automatic 50:50 Split)

If you own property as joint tenants (typically married couples), rental income and expenses are automatically split 50:50 for tax purposes. Each owner reports their half separately under their own MTD ITSA account.

Tenants in Common (Elected Percentage Split)

If you own as tenants in common, you can specify ownership percentages (e.g., 90:10, 70:30). Rental income and expenses split according to those percentages. Each owner reports their share under their own MTD ITSA account. Form 17 election required with HMRC.

Impact on MTD ITSA Threshold

Each owner’s share of gross rental income counts toward THEIR MTD ITSA threshold, not the total property income:

Example: Married couple owning BTL portfolio jointly

•       Total gross rental income: £80,000 per year
•       Split 50:50 as joint tenants
•       Each spouse’s share: £40,000 per year
•       Neither spouse is over the £50,000 MTD ITSA threshold
•       Result: NEITHER spouse enters MTD ITSA in April 2026
•       However, both may enter in April 2027 when threshold drops to £30,000

Joint ownership planning opportunity: Splitting property ownership between spouses can defer MTD ITSA start dates. However, this only works if the ownership split reflects economic reality and is properly documented via joint tenancy or tenants in common with Form 17 election.

Furnished Holiday Lets (FHL) Rule Changes

From 6 April 2025, the Furnished Holiday Lets (FHL) tax regime is being abolished. This has significant implications for MTD ITSA:

Before April 2025 (FHL Regime)

•       FHLs were treated as trading income (like self-employment)
•       Full mortgage interest deduction available (no Section 24 restriction)
•       Capital Allowances available on furnishings
•       Business Asset Disposal Relief available on sale
•       Pension contributions allowed on FHL income

From April 2025 Onwards

•       FHLs treated as normal property income
•       Section 24 mortgage interest restriction applies
•       Capital Allowances no longer available for new items
•       Loss of Business Asset Disposal Relief
•       Loss of pension contribution ability from this income

MTD ITSA Implications

•       Former FHL income counts toward the £50,000 MTD ITSA threshold from April 2026
•       Reporting under ‘UK property’ category rather than trade
•       Some existing FHL owners will enter MTD ITSA sooner than they realised

FHL transition planning: Holiday let operators face substantial tax changes plus MTD ITSA compliance from 2026. Speaking to a chartered accountant BEFORE April 2025 to structure the transition properly saves significant tax and simplifies MTD compliance.

Cash Basis vs Accruals for Landlords Under MTD

Cash basis has been the default for landlord Income Tax since April 2024, with an upper limit of £150,000 gross rental income. Under MTD ITSA, cash basis will simplify quarterly reporting significantly.

Cash Basis Benefits for Landlords

•       Simpler quarterly submissions (matches bank account activity)
•       Tax follows actual cash received
•       Void periods automatically handled (no rent received = no tax)
•       Late-paying tenants create automatic tax deferral

Accruals Basis Benefits

•       Better cash flow visibility for portfolio management
•       Traditional accounting method (easier for external stakeholders)
•       Required for landlords with over £150,000 rental income
•       Better for landlords with significant work-in-progress renovations

Read our full MTD Cash Accounting guide for detailed cash vs accruals analysis.

Property Allowance and MTD Threshold

The Property Allowance of £1,000 allows landlords to receive up to £1,000 of gross rental income tax-free per year without needing to declare it. This does NOT count toward the MTD ITSA threshold.

When Property Allowance Applies

•       Gross rental income £1,000 or less: no declaration required at all
•       Gross rental income £1,000 to £50,000: declare via Self Assessment (not MTD ITSA)
•       Gross rental income over £50,000: MTD ITSA applies from April 2026

Property Allowance vs Actual Expenses

If your actual property expenses are more than £1,000, you deduct actual expenses (better outcome). If actual expenses are less than £1,000, you claim the Property Allowance instead (better outcome). MTD ITSA quarterly submissions can accommodate either approach.

Portfolio Structuring for MTD ITSA

For portfolio landlords, MTD ITSA creates new questions about optimal ownership structures:

Personal Ownership

•       Simplest to administer under MTD ITSA
•       Section 24 mortgage interest restriction applies to residential BTL
•       Rental profit taxed at personal Income Tax rates (20%, 40%, 45%)

Limited Company Ownership (SPV)

•       Escapes personal MTD ITSA (falls under future MTD Corporation Tax from April 2027)
•       Mortgage interest fully deductible (no Section 24 equivalent)
•       Corporation Tax rates (19% or 25% – lower than higher-rate personal tax)
•       Extraction via dividends or salary subject to further personal tax
•       Higher upfront setup complexity

Joint Ownership Between Spouses

•       Can split rental income between different marginal tax rates
•       Can defer MTD ITSA if split reduces each spouse below thresholds
•       Form 17 election needed for tenants in common with unequal shares

Portfolio structuring is worth chartered accountant advice: The right structure for a growing landlord portfolio combines tax efficiency, MTD ITSA planning, and long-term inheritance considerations. A one-time strategic review typically pays back many times over.

Case Study: Preparing a Portfolio Landlord for MTD ITSA

A portfolio landlord based in the Manchester area came to us in early 2026 for MTD ITSA readiness. She owned 6 residential buy-to-let properties across Greater Manchester (Salford, Prestwich, Sale, and Stockport), with combined gross rental income of approximately £86,000 per year and combined mortgage interest of approximately £26,000. She held all properties in her own name with basic-rate husband as passive support (not on title deeds). She had been managing everything with Excel spreadsheets and a manual bookkeeper who prepared her annual Self Assessment.

Her situation:

•       6 BTL properties in her sole name
•       £86,000 gross rental income (over £50,000 MTD ITSA threshold)
•       Manual Excel record-keeping (non-compliant under MTD digital links rules)
•       Higher-rate taxpayer (£64,000 combined income including £3,000 dividend income)
•       MTD ITSA mandatory from April 2026
•       Section 24 restriction costing her approximately £5,200 per year in additional tax

What we did:

1.     Reviewed portfolio structure and identified joint tenants restructuring opportunity with husband
2.     Advised on transferring 50% ownership to husband (basic-rate taxpayer) via joint tenants declaration
3.     Modelled the tax saving: shifting half the profit to basic-rate saves approximately £4,800 per year post-Section 24 mechanics
4.     Migrated her from Excel to FreeAgent (compliant MTD software) with property-specific configuration
5.     Set up separate tracking categories for each property to maintain useful management information
6.     Configured bank feed to capture all rental income and mortgage payments automatically
7.     Prepared her for MTD ITSA quarterly submissions starting April 2026
8.     Set up combined MTD ITSA registration for both her and husband (each with own account)

Outcome: Tax saving of approximately £4,800 per year through joint ownership restructuring. MTD ITSA compliant record-keeping in place well ahead of April 2026 mandate. Automatic bank feed reducing bookkeeping time from 12 hours per month to about 3 hours per month. Combined saving in year one approximately £8,400 including reduced bookkeeping costs. Our monthly fee of £220 covering both spouses’ MTD ITSA compliance easily justified.

MTD Rental Income: FAQs

Do I need MTD ITSA if I am a landlord?

Yes, if your gross rental income exceeds relevant thresholds: £50,000 from April 2026, £30,000 from April 2027, £20,000 from April 2028. Threshold is gross income before expenses, not profit. Both personal and combined self-employment income count toward the threshold.

What counts as rental income for MTD?

Buy-to-let residential and commercial rent (gross), HMO income, holiday let income, former FHL income, Airbnb income, ground rent received, service charges received. Rent-a-room income above £7,500 tax-free threshold. Overseas property income for UK residents. Rental in Ltd company falls under MTD Corporation Tax, not personal MTD ITSA.

Do landlords have to file quarterly returns?

Yes, if within MTD ITSA scope. Quarterly submissions plus annual Final Declaration. Standard quarters: 6 April-5 July, 6 July-5 October, 6 October-5 January, 6 January-5 April. Deadlines are 1 month after quarter end. Cannot opt out of quarterly filing (unlike VAT which offers monthly and annual alternatives).

How does joint ownership work under MTD ITSA?

Each owner reports their share separately. Joint tenants split automatically 50:50. Tenants in common split according to Form 17 election (any percentage). Each owner’s share counts toward THEIR MTD threshold, not total property income. Splitting between spouses can defer MTD ITSA start.

What about Section 24 mortgage interest under MTD?

Section 24 rules continue. Mortgage interest on residential BTL is NOT deducted as expense but generates 20% tax reducer. Quarterly submissions include mortgage interest amount separately. Reducer calculated annually at Final Declaration stage. Effect: higher-rate landlords pay significantly more tax than pre-2017.

Are Furnished Holiday Lets under MTD?

Yes, from April 2025 the FHL regime is abolished and all holiday let income treats as normal property income. Included in £50,000 MTD ITSA threshold from April 2026. Section 24 applies. Capital Allowances no longer available. This is a substantial change for holiday let operators.

Can landlords use cash basis under MTD?

Yes, if gross rental income under £150,000. Cash basis is the default from April 2024 and remains so under MTD ITSA. Simplifies quarterly submissions significantly. Landlords over £150,000 must use accruals basis.

What is the Property Allowance and does it affect MTD?

Property Allowance of £1,000 lets you receive up to £1,000 gross rental income tax-free without declaring. Does NOT count toward MTD threshold. Between £1,000 and £50,000: declare via Self Assessment. Over £50,000: MTD ITSA applies.

Should I move my rental property to a limited company for MTD?

Depends on your specific situation. Ltd company avoids personal MTD ITSA (but hits MTD Corporation Tax from April 2027). Corporation Tax rates (19% or 25%) can be lower than higher-rate personal tax. But extraction creates further tax. Setup costs and ongoing admin higher. Get chartered accountant advice modelling both scenarios.

Do overseas properties count under MTD ITSA?

Yes, for UK tax residents. Overseas property rental income is reported under UK MTD ITSA rules. Multi-currency income requires proper handling. Foreign tax paid may be creditable against UK tax. Complex area worth chartered accountant support.

What software should I use for MTD landlord submissions?

FreeAgent (free with NatWest/RBS/Mettle banks), QuickBooks, Xero, or Sage all support landlord MTD ITSA. Property-specific features vary. Landlord-specific software (Landlord Vision, Hammock, ArtHouse) can also support MTD via bridging. Choose based on portfolio size and complexity.

Can I claim mortgage interest as expense under MTD?

For residential BTL: NO, mortgage interest is subject to Section 24 (20% tax reducer only). For commercial property: YES, mortgage interest fully deductible as expense. For Ltd company holding property: YES, fully deductible. Different rules for different property types under MTD.

What happens if I own property jointly with someone who is not my spouse?

Non-spousal joint ownership: split follows legal ownership deeds. Each owner reports their share separately for MTD ITSA. Each owner’s share counts toward their own MTD threshold. Form 17 election is only available for married couples and civil partners.

Do I need to register for MTD ITSA even if I already have Self Assessment?

Yes. MTD ITSA is a separate registration. Even if you already file annual Self Assessment for rental income, you must actively sign up for MTD ITSA if you meet thresholds. Annual Self Assessment continues (renamed Final Declaration under MTD), but quarterly submissions are the new addition.

How much extra time will MTD ITSA take for landlords?

Depends on your setup. With cloud accounting software and bank feeds: 30 to 60 minutes per quarter for small portfolios (1-3 properties), 1 to 3 hours per quarter for larger portfolios (4-10 properties). Larger portfolios often benefit from chartered accountant management at fixed monthly fees from £100.

Get Ready for MTD ITSA as a Landlord – Free ICAEW Consultation

MTD ITSA hits UK landlords hard from April 2026. Portfolio structuring, joint ownership planning, cash vs accruals decisions, software selection, and Section 24 interaction all need proper planning BEFORE the April 2026 mandate to avoid rushed decisions and non-compliance risks.

At MTD – Making Tax Digital (part of B1 Accountants), our ICAEW chartered accountants prepare UK landlords for MTD ITSA every day. We can:

•       Assess your MTD ITSA position and timing
•       Model tax-optimal joint ownership or portfolio structuring
•       Advise on Ltd company vs personal ownership for growth
•       Handle Form 17 elections and legal restructuring where beneficial
•       Set up MTD-compliant software with property-specific configuration
•       Handle all quarterly MTD submissions at fixed monthly fees from £100
•       Provide ongoing property tax advice including Section 24 optimisation