MTD for ITSA - Good news for some UK joint property owners

Brief background

MTD for ITSA (Income Tax Self-Assessment) was first announced back in 2021 and the new government have confirmed it remains planned to roll out starting in 2024/25.? Under MTD ITSA both self employed individuals and anyone with income from property (i.e. landlords) whose “qualifying income” is above the reporting threshold will need to comply with the MTD rules and sign up for the scheme with HMRC.?

Qualifying income is the combination of both income from self-employment and property income.? The MTD rules include keeping digital accounting records and submitting information to HMRC both quarterly (as a periodic update) and at the year end (as part of the annual self-assessment process). ?Anyone with a qualifying income of more than ￡50,000 will have to sign up and start reporting from April 2026, and taxpayers with a qualifying income between ￡30,000 and ￡50,000 will have to join from April 2027.

A benefit or a burden?

Whilst some individuals who run their own business may initially feel this a burden, my personal view is that this is a very short-term opinion.? Business owners will find using business software highly beneficial once they start using software and learn how much easier it is to automate the administrative side of their business so that they can focus on what they enjoy or generating revenue.

Accidental Landlords

Accidental landlords (my term for people who have inherited a property they then rent out or moved in with a partner and retained both properties, renting one out) often keep the property for sentimental reasons, or are simply holding onto it whilst they decide what to do.? They often have a single tenant who pays rent once a month, have a few costs related to maintenance and that is it.? Typically, accidental landlords do not think of themselves as landlords and have other income sources (i.e. their day job).?

HMRC acknowledge that calculating how much income each “landlord” receives can be challenging. ?It can be very complex to work out how to split profits (especially if the property is inherited by several family members with different ownership shares) and a Property Manager is often used to retain the tenant, collect rent, organise any essential costs such as repairs and then share out the net income at the end of the year. Good property managers will already use software to ensure that they accurately track income and expenses, keep track of maintenance, safety certificates and the many other tasks that are involved in managing and maintaining a rented property.

The good news

Where property is jointly owned, HMRC have previously explained that each individual should only use their own share of the income from that property when assessing if their qualifying income is above the threshold.

HMRC updated their guidance on 31st July 2024 to include details of the SA105 concession that if a taxpayer jointly owns a property and only receives notice of their share of the income after expenses have been deducted, then only the net figure will count towards qualifying income.? For example, if two people jointly own a property that generates ￡60,000 of gross income and ￡10,000 of expenses, and they split the net income equally and arrange matters so that the only receive notice of their share of the income after expenses have been deducted, then each of them will have ￡25,000 of qualifying income from the property.

To take use of this concession all “landlords” will need to tell HMRC the name and address of the person who prepares the property accounts but as I noted above, a Property Manager may already be managing the property, collecting income and paying out any expenses.? However, for some “landlords” whose gross property income (plus income from self-employment) is just over the threshold, organising the way the income is reported to each “landlord” so that they only receive notice of their share of the income after expenses have been deducted may move them out of the MTD for ITSA scope. ?This does not avoid the need to declare and pay the correct amount of income tax but may keep life slightly simpler for the true accidental landlord.

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