HMRC recovers £104m from landlord tax ‘nudge letters’

HM Revenue & Customs recovered £104.3 million in unpaid tax from landlords in 2025/26, the third consecutive year in which the total exceeded £100 million.

Landlords made 11,511 voluntary disclosures during the year, the highest number since 2018/19.

The average payment was £9,063, down from a record £13,713 in the previous year.

The figures, obtained by accountancy firm Price Bailey, include tax recovered through voluntary disclosures under the Let Property Campaign.

They also include compliance action involving non-responders and discovery assessments.

Nudge letters bring disclosure

Andrew Park, a tax investigations partner at the firm, said: “HMRC’s data-matching capability has become relentless.

“Most voluntary disclosures are now prompted by HMRC nudge letters, and we are seeing a clear trend in larger numbers of smaller cases.”

He added: “HMRC is casting the net wider and catching landlords who may only have modest rental income but still have undeclared tax liabilities.”

Mr Park said many of those affected were accidental landlords who had retained a property after moving in with a partner, inherited a home or temporarily moved abroad.

He said: “They are often genuinely unaware that they have taxable profits to disclose.”

HMRC uses Land Registry data

HMRC recovered £36.8 million from landlords in 2019/20, and the amount collected in 2025/26 was almost three times higher.

The Let Property Campaign has generated £674 million since it was launched in 2013/14.

It allows landlords who have underpaid tax on their property income to make a disclosure and potentially receive lower penalties.

Price Bailey said HMRC was increasingly using Land Registry records to identify people who owned several residential properties and might have undeclared income from rent.

Those landlords may then receive a ‘nudge letter’ asking them to check whether they have paid the correct amount of tax.

Landlord ‘phantom profits’

Mortgage interest tax changes are also continuing to cause problems, Price Bailey says.

Landlords can no longer deduct all mortgage interest from their property income before calculating taxable profits and instead receive a 20% tax credit.

Mr Park said: “A lot of landlords continue to be caught by the ‘phantom profit’ effect.

“Since mortgage interest relief was withdrawn, taxable profit can appear even when there is little or no real-world profit.

“That mismatch is still driving arrears and compliance failures.”

Revenue expenses and capital improvements

Landlords can also be caught by the distinction between revenue expenses and capital improvements.

Replacing a kitchen on a like-for-like basis may be deductible, while installing a substantially upgraded kitchen may be treated as capital expenditure.

Further reporting requirements have added to the compliance burden.

Making Tax Digital for Income Tax requires quarterly submissions from April where combined gross property and self-employment income exceeds £50,000.

The threshold is due to fall in stages to £20,000 from 6 April 2028.

Also, the annual capital gains tax exemption has been reduced to £3,000, while higher capital gains tax rates apply to property disposals made after October 2024.

Landlords must review tax

Mr Park said: “Reduced allowances, more frequent reporting and increasingly complex rules mean landlords should review their tax affairs carefully.

“Even unintentional omissions can lead to significant liabilities as HMRC’s compliance activity intensifies.”

An HMRC spokesman told the Daily Telegraph: “The Let Property Campaign is an opportunity for landlords to disclose any unpaid tax in a simple, straightforward way and take advantage of the best possible terms.

“Our nudge letters help customers pay the correct amount of tax.

“By paying correctly and on time, they avoid penalties and interest.”