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Landlord news · Tax

Taxed on money you never made

Landlords call it 'phantom income'. Add Making Tax Digital, which started in April, and tax is now a year-round job. Here's how to keep it calm.

4 November 2026 · 5 min read

"My rent barely covers the mortgage, so why is my tax bill going up?" It's one of the most common questions in the landlord groups, and the answer has a nickname: phantom income.

The Section 24 squeeze

If you own rental property in your own name, you can no longer deduct mortgage interest from your rent before working out your profit. Instead you get a tax reduction worth 20% of the interest (in most cases).

So your taxable profit looks bigger than the money you actually kept. For a basic-rate taxpayer it often evens out. For a higher-rate taxpayer, or someone pushed into a higher band by the "extra" profit, it can mean paying tax on money that went straight to the bank.

A simple example (from GOV.UK)

Rent £52,000. Mortgage interest £20,000. Other costs £9,000. Profit before interest: £43,000. The tax reduction is 20% of £20,000, so £4,000 comes off the tax bill. The interest itself isn't deducted from the profit.

Now add Making Tax Digital

From 6 April 2026, landlords and sole traders with qualifying income over £50,000 must keep digital records and send HMRC a short update every quarter, using recognised software. The line drops to £30,000 from April 2027 and £20,000 from April 2028.

"Qualifying income" is your total rent and self-employment income before costs, not your profit. With five homes, many landlords are already in.

Quarterly update deadlines

  • 7 August, 7 November, 7 February and 7 May.
  • Then a final declaration by 31 January, as before.

How to keep it calm

A year-round tax routine

  • Keep each property's money separate: rent in, costs out, mortgage interest on its own line.
  • Snap receipts when you pay, not in January.
  • Own it jointly? Record each owner's share. It changes who pays what.
  • Check if you're in: add up last year's gross rent and self-employed income.
  • Pick your software early and talk to an accountant about Section 24 and your structure.

How Lordease helps

Income and outgoings for every property are on your dashboard, with bills and one-off costs logged per home. Coming soon: an income and expense ledger, ready for Making Tax Digital.

General information, not tax advice. Your situation may differ, so speak to an accountant.

The landlord stories here are retold from public discussions in UK landlord communities. Details are changed and nobody is named. General information for England, not legal or tax advice. Check GOV.UK or speak to a professional about your own situation.

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