Steep tax increases and burdensome digital regulations may compel property owners to consider selling their rental properties.
New and Challenging Hurdles for Buy-to-Let Landlords
Get ready, landlords! The rental market is about to see a shakeup, thanks to the government's Making Tax Digital (MTD) scheme. This bad news could lead to a squeeze in the supply of rental properties, according to recent research.
The fiscal advisory firm, Blick Rothenberg, has sounded the alarm. The MTD scheme will add to the costs and administrative headaches that come with letting properties to tenants.
Starting from April 2026, the government's plan will introduce new, stealth costs when filing digital tax returns. And, to make matters worse, landlords will need to fork over money for proprietary software or pay an accountant to help them out.
Heather Powell, the leader of Blick Rothenberg's property division, put it this way: "Under the MTD regime, landlords with a gross rental income of £50,000 or more (£4,167 per month) in the year to 5 April 2025 will be obligated to report their income and expenses on a quarterly basis from April 2026, with the first filing due by 7 August 2026. Reporting will only be possible via commercial software that a landlord will need to purchase, or there's always the option of handing it over to their accountant."
In April, accountancy software firm FreeAgent conducted a survey revealing that the majority of small businesses are concerned about the impact of these new rules.
Costly and Clumsy?
The research showed that a significant number of businesses are unprepared for this seismic shift in tax regulations. Nearly one-third of the businesses surveyed expressed worry about the financial burden of compliance, including software costs and operational adjustments.
Additionally, the cost of the scheme has ballooned during its development, with the National Audit Office (NAO) warning in 2023 that costs have skyrocketed north of £1bn.
Powell also mentioned that these changes could drive private landlords out of the market: "The returns for buy-to-let investors, particularly those with fewer than three properties, are going to take a significant hit due to this new regime. It could very well be the final straw for many.
"With these changes, we'll see more homes for those who can afford to buy, but it could present a challenge for those who need to rent as the number of homes on the market decreases, especially in London and the South East."
So, while MTD aims to improve tax compliance and efficiency, it might also lead to increased costs and administrative burdens for buy-to-let landlords, potentially swaying their decision to stay in the rental market.
The financial burden of compliance with the Making Tax Digital (MTD) scheme, including software costs and operational adjustments, has caused concern among private landlords, as it could increase costs and administrative burdens, potentially swaying their decision to stay in the rental market. Furthermore, the MTD regime in the property sector might lead to a reduction in the number of rental properties available, due to the higher costs and administrative headaches that come with it, which could present challenges for those who need to rent, especially in areas like London and the South East, where housing is already scarce.
