Common Rental Income Tax Errors on Self Assessment: The Top 10

HMRC’s landlord compliance programme generates thousands of enquiries each year and the same errors appear again and again. If your Self Assessment returns contain any of the following mistakes, HMRC’s risk profiling systems are likely to flag them. Here is what HMRC looks for, the correct treatment and what is at stake.

Error 1: Claiming full mortgage interest after the s24 restriction

What HMRC looks for: Returns where the finance cost deduction for a residential buy-to-let represents a high proportion of gross rental income, particularly from 2017/18 onwards or where the declared rental profit seems inconsistent with the size of the property portfolio and prevailing mortgage rates.

How HMRC finds it: HMRC’s Connect system analyses expense-to-income ratios across landlord returns. A consistent pattern of high finance cost deductions in post-2020 returns is a standard risk trigger.

The correct treatment: Since 6 April 2020, mortgage interest and other finance costs on residential lets cannot be deducted as a business expense. Instead, a 20% basic rate tax credit applies to the total finance costs. The practical effect is that higher and additional rate taxpayers pay more income tax on rental profits than they did before the restriction. The restriction does not apply to commercial property or (until April 2025) furnished holiday lets.

Penalty risk: Careless if the taxpayer was unaware of the change; potentially deliberate if it was understood but ignored. Multi-year errors at the 40% tax rate compound quickly into substantial liabilities.

Error 2: Claiming personal costs as business expenses

What HMRC looks for: Expense claims that appear disproportionate to the scale of the property business or categories of expense (travel, phone, home office) that are only partly business-related.

How HMRC finds it: Comparison of expense ratios with similar landlord profiles and specific queries about expense categories that routinely have a personal element.

The correct treatment: Only expenses incurred wholly and exclusively for the property business are deductible. Travel to inspect properties is deductible; travel between home and office is not. Where an expense has a dual purpose, only the business proportion can be claimed. Costs relating to a property during a void period are generally deductible, but costs during a period of personal use are not.

Penalty risk: Careless in most cases. HMRC typically disallows the private element and raises an assessment for the additional tax, plus interest.

Error 3: Claiming capital expenditure as revenue (repairs)

What HMRC looks for: Large one-off repair claims, particularly following a property purchase or in years when the property was significantly upgraded. Claims for items that extend or improve the property (a new bathroom suite where none existed, a loft extension, full rewiring of a property not previously wired for modern standards).

How HMRC finds it: Amounts are compared across years. A claim for £25,000 in “repairs” in a single year on a property producing £12,000 of gross rent is an obvious anomaly. HMRC may also cross-reference planning permission records for improvement works.

The correct treatment: Revenue expenditure, restoring the property to its original condition, replacing like-for-like, is deductible in the year incurred. Capital expenditure, improving or extending the property or carrying out work on a newly acquired property to make it lettable when it was not before, is a capital cost. Capital costs are added to the property’s base cost and reduce the capital gain on eventual disposal, but they cannot be deducted against rental income.

Penalty risk: Careless is the standard HMRC position unless there is evidence the landlord knowingly miscategorised the expenditure.

Error 4: Failing to declare all properties

What HMRC looks for: A discrepancy between the number of properties in the Land Registry data and the number of properties reflected in the rental income on the return. Income from properties managed by different agents or under different arrangements.

How HMRC finds it: Land Registry data feeds directly into HMRC’s Connect system. A taxpayer with four properties and two years of Self Assessment returns declaring income from only two of them is a straightforward match.

The correct treatment: All UK rental income from all properties must be declared on the UK property pages of the Self Assessment return. Overseas properties are declared on the foreign supplementary pages. There is no threshold below which rental income is exempt (unlike the £1,000 trading income allowance, the property allowance is also £1,000 per year and only applies where total property income, not profit, is at or below that level).

Penalty risk: Whether the omission is careless or deliberate will depend on the facts. A landlord who simply forgot about a small property managed by a relative may be treated as careless. A landlord who maintains a separate bank account for income from omitted properties will find it hard to argue anything other than deliberate.

Error 5: Treating furnished holiday lets incorrectly after April 2025

What HMRC looks for: Returns for 2025/26 and later that continue to claim capital allowances on FHL furniture and equipment or that apply the old FHL basis period rules or that claim business asset disposal relief on the sale of a short-term let property.

How HMRC finds it: The FHL supplementary pages on the Self Assessment return were removed for 2025/26. Any landlord who continues to report on that basis or who uses the old expense treatment without using the correct residential property pages, will create an immediate discrepancy in the system.

The correct treatment: From 6 April 2025, the Furnished Holiday Letting regime no longer exists. Properties that previously qualified as FHLs are now taxed as residential lets under Part 3 ITTOIA 2005. This means: mortgage interest is subject to the s24 restriction; replacement furniture relief (not capital allowances) applies to furniture costs; income does not count as relevant earnings for pension contribution purposes; and the sale of a former FHL property is not eligible for the favourable CGT rates previously available to FHL owners. Landlords who have been relying on FHL status for pension contributions or CGT planning should review their arrangements urgently.

Penalty risk: Low for 2025/26 if the error is corrected promptly, as HMRC acknowledges the transition. Higher for later years or where the taxpayer has actively argued FHL status knowing the regime has been abolished.

Error 6: Using the wrong basis period

What HMRC looks for: Property income declared on an accounting-period basis rather than on the tax-year (6 April to 5 April) basis. Rental businesses cannot use non-tax-year accounting periods in the way that trading businesses previously could.

How HMRC finds it: The income declared in the property section of the return should relate to the tax year. Where a landlord has historically reported on a December year-end or other accounting date, the figures will be out of step with the tax year and HMRC may identify this during a compliance check.

The correct treatment: UK property income is taxed on the income arising in the tax year (6 April to 5 April), not on any other accounting period. Rent received and expenses paid in the tax year are the starting point. The cash basis is available to most individual landlords (unless receipts exceed £150,000), which simplifies the calculation, but even cash basis must use the correct tax year dates.

Penalty risk: Generally low, as this is a technical error rather than a material omission. But where the effect of using the wrong basis period is to defer income into a later year, an assessment for the additional tax may be raised.

Error 7: Replacement furniture relief: getting the calculation wrong

What HMRC looks for: Claims that exceed the cost of a like-for-like replacement (for example, claiming the full cost of upgrading from a standard sofa to a designer sofa as a replacement furniture deduction); claims on initial furnishing costs rather than replacement costs; claiming for items in unfurnished properties.

How HMRC finds it: Specific queries during an enquiry or random compliance check. Large or unusual furniture cost claims relative to the property type trigger review.

The correct treatment: Replacement furniture relief (s311A ITTOIA 2005, inserted by Finance Act 2016) allows a deduction for the cost of replacing furniture, furnishings, appliances and kitchenware in a residential let. The deductible amount is the lower of the cost of the replacement item or the cost of an equivalent item with broadly the same function as the original. If the landlord buys a superior replacement, only the cost of the equivalent replacement is deductible. The relief is only available on replacement, not on initial furnishing. There is no deduction for the first set of furniture when a property is let for the first time.

Penalty risk: Careless. Most landlords have not read the legislation carefully and apply the relief in a way that feels logical but is technically incorrect.

Error 8: Omitting deposit income and insurance payouts

What HMRC looks for: Income from tenant deposits retained at the end of a tenancy (where the landlord decides to keep part or all of the deposit); insurance payouts received for loss of rent; rent arrears payments made by local authorities under housing benefit arrangements that have not been declared.

How HMRC finds it: Deposits retained after a tenancy dispute can appear in tenancy deposit scheme records where the dispute outcome is recorded. Insurance payout data is occasionally available through bulk data requests. Rent arrears from housing benefit are a specific focus of compliance checks targeting social housing landlords.

The correct treatment: Retained deposits are treated as rental income in the year they are retained. Insurance payouts that compensate for lost rent are taxable as rental income. They replace the rent that would otherwise have been received. If the payout relates to a capital loss (for example, damage to the property), it may be a capital receipt rather than income, but professional advice should be sought on the specific facts.

Penalty risk: Careless in most cases, as these are income categories that do not appear on standard landlord bookkeeping templates. However, a pattern of routinely omitting these categories over several years can shade into deliberate.

Error 9: Getting the non-resident landlord rules wrong

What HMRC looks for: Non-UK resident individuals receiving UK rental income who have not registered under the Non-Resident Landlord Scheme; UK-based letting agents who are not operating the withholding tax mechanism for NRL landlords; landlords who have applied for gross receipt status but have not declared the income on UK returns.

How HMRC finds it: Common Reporting Standard data from foreign tax authorities identifies UK property ownership by non-UK residents. Letting agents are required to operate the NRL scheme; those who are not complying are a known HMRC target.

The correct treatment: Non-resident landlords are subject to UK income tax on UK rental profits. They can apply to receive rents gross (without withholding) if they are up to date with their UK tax obligations and register with HMRC. Even with gross payment status, UK rental profits must be declared on a UK Self Assessment return. Double tax treaty relief may be available to reduce UK tax where the landlord pays tax in another country on the same income, but this is a technical area requiring specialist advice.

Penalty risk: Can be high where large sums have been received gross without registration. The penalties for failure to notify HMRC of a UK tax liability are calculated under Schedule 41 FA 2008 rather than Schedule 24 and in offshore cases can attract uplifted percentages.

Error 10: Failing to report CGT on a rental property sale

What HMRC looks for: Property disposals appearing in Land Registry data that do not have a corresponding CGT return or disclosure. Sales occurring after 27 October 2021 where the 60-day reporting window has been missed.

How HMRC finds it: Land Registry records every property transaction. HMRC receives these records and can identify every sale of a property that was previously let. The absence of a 60-day report or the absence of CGT disclosure on the Self Assessment return for the relevant year, is automatically flagged.

The correct treatment: CGT on residential property must be reported and paid within 60 days of completion using HMRC’s online 60-day reporting service. The gain is also declared in the capital gains pages of the Self Assessment return for the relevant tax year. Private residence relief may reduce the gain if the property was at some point the landlord’s main home. Lettings relief is now very restricted (available only where the landlord shared occupation with the tenant). The annual CGT exemption (£3,000 for 2025/26) and the basic-rate band available to the taxpayer also affect the final CGT calculation. See our full guide for detail on CGT and rental properties.

Penalty risk: An automatic £100 penalty for the 60-day return if filed late, with further daily penalties for extended delays. The underlying CGT liability may attract a careless penalty if the taxpayer was unaware of the obligation, or a deliberate penalty if the disposal was knowingly concealed.

Related guides in this series

• HMRC rental property investigations: the complete guide
• The Let Property Campaign: disclosure step by step
• When HMRC finds undeclared rental income
• HMRC penalties for undeclared rental income
• Estimate your penalty