Preparing Landlords for MTD: The Unique Challenges of Property Income

Making Tax Digital for Income Tax is reshaping how landlords manage their property portfolios, but the reality is far more complex than HMRC's straightforward messaging suggests. From April 2026, MTD for income tax will apply to anyone with a qualifying income of more than £50,000 per year from self employment or property, with the threshold dropping to £30,000 in 2027 and £20,000 in 2028.

For accountants working with landlord clients, this isn't just about quarterly submissions. The real challenge lies in the unique complexities that property portfolios present - mixed ownership structures, joint landlord arrangements, overseas properties, and expense allocation across multiple income streams that traditional accounting software simply wasn't designed to handle.

The MTD Timeline: Critical Deadlines Approaching Fast

HMRC will identify landlords who must use MTD for Income Tax from 6 April 2026 based on their 2024 to 2025 tax return (which has to be submitted by 31 January 2026). This means the calculation window is closing rapidly, and many landlords remain unaware of their obligations.

The phased rollout creates its own complications:

• April 2026: Landlords with gross income over £50,000
• April 2027: Threshold drops to £30,000
• April 2028: Further reduction to £20,000

According to the 2024 English Private Landlord Survey, the median gross rental income landlords was £19,200. This means that the majority of landlords can expect to be subject to Making Tax Digital by 6 April 2028.

What catches many off guard is that income from self employment and landlord rents are combined together. A plumber earning £35,000 who also receives £20,000 in rental income suddenly finds themselves over the £50,000 threshold for 2026.

Mixed Property Ownership: A Compliance Nightmare

The complexity multiplies when landlords own properties through different structures. A single landlord will have some properties in their own name, others jointly owned with their spouse and potentially others owned through a limited company. Each structure has different reporting requirements.

If your buy to let properties are owned by a limited company you set up for the purpose, MTD for Income Tax won't apply to those properties. However, properties owned personally or jointly must be included in MTD calculations.

Current accounting software struggles with this reality. Generic platforms like Xero and QuickBooks require complex workarounds to track multiple ownership structures. Xero lacks property management features such as tenancy management, document storage, reminders, email and SMS templates and automation, while QuickBooks is difficult to set up and easy to make a mess of, particularly when using QuickBooks for landlords who have multiple properties.

The Software Reality Check

Landlords trying to prepare for MTD with traditional accounting software face significant obstacles:

Complex Setup: The first limitation of using QuickBooks for a rental property is it's difficult to set up and easy to make a mess of.

Multiple Property Confusion: QuickBooks doesn't have a built in structure to manage multiple properties separately.

Limited Customization: QuickBooks doesn't provide the level of customization or integrations landlords need, making it hard to create rental specific reports.

Unit Level Tracking Problems: Income and expenses can be tracked at the property level, but not at the unit level.

Joint Landlord Complications: Individual Obligations, Shared Properties

Joint ownership creates some of the most complex MTD scenarios. The MTD IT threshold applies to the combined income of their multiple properties. It doesn't relate to the individual income from a specific property.

Here's where it gets complicated: The £50,000 threshold applies per individual, not per property or portfolio. If two people jointly own a property generating £60,000 annually, each person's share is £30,000 - below the 2026 threshold but above the 2027 limit.

Where rented property is jointly owned by two or more individuals, each owner will be required to maintain their own digital records and submit separate quarterly returns to HMRC. This means separate software subscriptions, separate quarterly submissions, and separate record keeping - even for the same properties.

The Joint Ownership Software Problem

Most accounting software wasn't designed for this complexity. HMRC is not very clear on this, except for a statement saying that, at present, only one agent could access each customer's MTD account. Splitting receipts: Imagine uploading utility bills, mortgage interest, and repairs, then manually splitting each one by ownership percentage. It's easy to get wrong.

The few solutions that do handle joint ownership typically require manual splitting of every expense, creating opportunities for errors and inconsistencies that could trigger HMRC enquiries.

Overseas Properties: The Hidden MTD Complexity

Overseas properties add another layer of complexity that many landlords overlook. If you let property in the UK and abroad, separate updates must be submitted for UK properties and foreign properties.

Even if a landlord lives abroad, if they earn over the MTD threshold from UK property income, they are still subject to the rules. However, only income generated from rental properties or self employment within the UK will be considered for UK MTD purposes.

The reporting requirements become particularly complex: If your client has foreign properties, for the 2025/26 tax year (pilot) they must complete a separate quarterly submission for each country, combining the income and expenses for all properties within that country. From the 2026/27 tax year, clients must report income and tax for each foreign property separately.

Traditional accounting software fails here too. Generic platforms lack the capability to handle multiple jurisdictions, currency conversions, and country specific expense categories while maintaining MTD compliance for UK elements.

Current Software Solutions: Why They Fall Short

The market's existing solutions reveal significant gaps when it comes to landlord specific MTD compliance:

Xero: Powerful But Problematic

Xero is one of the leading accounting software on the market today for a reason. They offer a comprehensive and thorough accounting package, but it comes with serious limitations for landlords. The program lacks management software capabilities, like tenant screening, and doesn't offer a way to upload important documents associated with tenant accounts. Xero also makes tracking properties on both a building and unit level very challenging.

QuickBooks: The Wrong Tool for the Job

QuickBooks has its limitations which become increasingly evident as you use it. For example, it's a challenge to set up, you can't easily keep track of your leases and associated tenants. Nor can you manage your accounts on multiple levels such as organization expenses, building expenses, and unit expenses.

According to industry experts, "Managing several multifamily properties with spreadsheets and outdated software created multiple pain points, making it cumbersome and time consuming to perform even the simplest tasks".

Spreadsheet Limitations

There's a big push for people to use spreadsheets with bridging software to import information to HMRC. However, spreadsheets are not the answer, and there's better software designed specifically for landlords. The nervousness with spreadsheets is that Microsoft reported 85% of spreadsheets contain errors.

AI Powered Property Income Tracking: The Smart Solution

The challenges outlined above require a fundamentally different approach - one that leverages artificial intelligence to understand the unique complexities of property portfolio management.

AI can automate document processing, including leases, invoices, and important records, allowing landlords and property managers to better organize and retrieve critical documents. But the real breakthrough comes from AI's ability to understand context and automatically allocate expenses across complex ownership structures.

Automatic Expense Allocation Intelligence

Modern AI powered solutions can analyze incoming receipts and automatically determine:

• Which property the expense relates to
• The appropriate ownership split for joint properties
• Whether expenses should be allocated to UK or overseas property portfolios
• The correct MTD category for each transaction
• Currency conversion for overseas properties

AI automation delivers instant financial insights, eliminating the wait for month end reporting. This means landlords can stay on top of their MTD obligations throughout the year rather than scrambling at quarter end.

Intelligent Data Unification

A next generation automation layer can sit on top of existing accounting systems, unifying data from multiple sources, performing hourly syncing, and extracting relevant information from emails and documents using OCR technology. AI agents can then maintain bookkeeping completeness automatically, ensuring nothing falls through the cracks.

This approach provides accountants and clients with a conversational interface to their complete accounting profile, allowing natural language queries like "Show me all maintenance expenses for jointly owned properties this quarter" or "What's my MTD liability across all UK properties?"

The Compliance Confidence Factor

HMRC is introducing a new penalty regime to support MTD for ITSA from April 2026. There will be a points based system for late submissions, where missing a quarterly or annual submission will result in a penalty point.

With penalties looming and complexity increasing, landlords need solutions that don't just tick the MTD compliance box but actively reduce their administrative burden while improving accuracy.

Traditional accounting software requires landlords to become bookkeeping experts. AI powered solutions flip this model, making the software the expert while landlords focus on their property portfolio strategy.

Looking Ahead: Preparing for Success

The MTD deadline isn't just about compliance - it's an opportunity to modernize property portfolio management. Landlords who embrace intelligent automation now will find themselves better positioned not just for MTD requirements, but for scaling their portfolios efficiently.

The key is choosing solutions that understand the unique challenges of property income - mixed ownership structures, joint landlord arrangements, overseas properties, and the complex expense allocation requirements that make property portfolios different from standard business accounting.

As the MTD deadlines approach, the question isn't whether landlords can afford to invest in proper automation - it's whether they can afford not to.

Want to explore smarter automation for accountants? Discover how AI can transform your landlord client management and eliminate the complexity of property income tracking. Join our waiting list to get early access to tools that understand your clients, your workflows, and your day, giving you more time for the work that truly matters.