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Making Tax Digital or MTD is on the way, and expat landlords must recognize the huge changes they must make to keep their books and work out their taxes.
MTD digitises the processing and submission of tax data that goes much further than filing tax returns online.
Instead of a once-a-year self-assessment filing, MTD is a rolling process requiring regular updating of specialist software.
HM Revenue & Customs claims MTD enables landlords to control their finances better, but the suspicion is the main reason for bringing in MTD is to improve cash flow for the Treasury.
Not every landlord will come under the MTD umbrella, so this guide explains MTD for income tax rules for non-resident landlords.
Table of contents
- What Is Making Tax Digital?
- Working Out Landlord Income For MTD
- MTD for different property businesses
- Sourcing MTD For Income Tax Software
- Landlords Exempt From MTD
- MTD For Income Tax Timeline
- Frequently Asked Questions
- Where can landlords find out more about MTD?
- Related Articles, Guides and Insights
- Questions or Comments?
What Is Making Tax Digital?
MTD is a major overhaul of the UK tax system that demands landlords keep digital tax records and file their returns to HMRC with compatible software.
Besides landlords, MTD will impact 4.2 million unincorporated businesses, individuals and other organisations with a trading or property income of £10,000 or more annually.
HMRC says MTD will help businesses to get tax filing right the first time.
Starting from April 2024, private landlords renting out property must switch to MTD. Location is not the trigger, so non-resident landlords are drawn into the MTD net wherever they are in the world.
MTD for VAT is already running, while MTD for corporation tax is on the way, but the switch is not expected until April 2026.
The rules also affect sole traders who rent out a property as a side hustle, as both earnings are added together to determine if someone must move to MTD.
Working Out Landlord Income For MTD
If you are not a sole trader, working out your MTD income is simple – total the rent you collect from each property you own in a tax year (April 6 one year until April 5, the following year).
Should the total come to £10,000 or more before deducting expenses, you should register online for MTD.
Watch out if you run a UK business overseas and rent out property in the UK.
For instance, if you live in Spain and rent out property in the UK, you don’t need to factor the Spanish rents into MTD, only those received for property in the UK.
If you run a business in the UK as a sole trader other than renting out a property, you should combine your UK earnings and rents into a single figure.
Again, should the total come to £10,000 or more before deducting expenses, you should register online for MTD.
MTD does not apply to salaried employees, so someone working full-time for an employer with a rental property generating £9,000 a year in rent should not register for MTD.
MTD for different property businesses
Not every taxpayer with income sourced from property comes under MTD – so here’s a quick guide to what’s in and what’s out.
Don’t forget the £10,000 income/combined sole trader threshold applies but the type of property is irrelevant to MTD:
- Buy to let or house in multiple occupations (HMO) – In for MTD if you own or part-own them as an individual, but out if company-owned
- Furnished holiday lets – In for MTD if you own or part-own them as an individual, but out if company-owned
- Rent from property outside the UK – Out if you are non-resident, but in if you live in the UK and own or part-own the property as an individual, but out if company-owned
- Buy to let or HMO rents paid to a company you set up – Out until MTD for Corporation Tax starts
Sourcing MTD For Income Tax Software
One of the significant MTD changes is HMRC demands landlords must use specialist accounting software that links with the MTD online platform.
Digitising tax means every taxpayer must keep business records in the same format, which goes further than filling in an online self-assessment form.
The big difference between MTD and self-assessment is MTD is an ongoing process rather than a once a year event.
The software will:
- Keep business records in a digital format set out by legislation
- Transmit quarterly and annual reports to HMRC based on the digital records
- Draft an end of year earnings statement that replaces a self-assessment return
- Communicates digitally with HMRC
From the start of MTD for Income Tax, landlords must ditch their paper records and spreadsheets – and the prep for using an unfamiliar system should start sooner rather than later to give time for familiarisation.
Landlords Exempt From MTD
- Landlords can apply for an exemption from MTD if:
Age, disability, location or other factors make access to a smart device, computer or the internet difficult for you
- You cannot use a smart device or computer on religious grounds
- You have another reason making MTD impractical
HMRC will offer more information about applying for an MTD exemption over the coming months.
MTD For Income Tax Timeline
Sole traders and landlords were due to start MTD for Income Tax from April 2023. However, this is now April 2024 due to the impact of the COVID-19 pandemic.
Business partnerships have extra time – until April 2025, while HMRC is still working on a date for limited liability partnerships (LLPs).
Frequently Asked Questions
If you received £10,000 or more in rent as an individual landlord, then the income goes to MTD, but any profit you made on the property’s value goes to Capital Gains Tax (CGT) as usual.
If you earn £10,000 or more a year from developing property, you should register for MTD. If you own a rental property and your combined income as a sole trader and landlord comes to £10,000, or more you should register.
Yes, if you retain some or all of a security deposit to cover repairs to a rental property, this counts as income for MTD, even though you can set off the cost of the repairs as a business expense.
For example, the deposit is £800, and you keep £650 for repairs, the £650 is MTD income even if you spent more than £650 to complete the work.
Yes. MTD does not change UK tax rules; just the way expat income is recorded and reported to HMRC. Double taxation agreements with other countries and the UK will still apply a normal.
Where can landlords find out more about MTD?
HMRC publishes regular MTD for Income Tax information and updates:
Related Articles, Guides and Insights
Below is a list of some related articles, guides and insights you may find interesting.
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