What HMRC checks in a rental income enquiry

Q: What else does HMRC commonly check?

Joint ownership. The toolkit says married couples and civil partners split rental profits equally unless they own in unequal shares and have made an election. See jointly owned rental property. Travel. The toolkit flags claims that include home to work or other non business journeys. Wages to relatives. HMRC asks what work was done and whether the pay matches the duties. Dual purpose costs. PIM2010 gives the example of a family holiday at a cottage that is said to be an inspection visit; it is unlikely to pass the wholly and exclusively test.

In an enquiry into property income, HMRC tests two things: whether all the gross rent has been declared, and whether each deduction was wholly and exclusively for the letting business and revenue rather than capital. The questions follow the risks HMRC lists in its Property Rental Toolkit, so expect to be asked about letting agent statements, repairs and improvements, mortgage interest, and any private or family use of a property.

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How does a rental income enquiry start?

For an individual landlord, an enquiry is opened by a notice under section 9A of the Taxes Management Act 1970. Where the return was filed on time, HMRC has until 12 months after the day it was delivered to open one. The notice may cover one aspect, such as a large repairs figure, or the whole return; the difference is explained in our guide to aspect and full enquiries.

HMRC often knows a good deal before it writes. Schedule 23 to the Finance Act 2011 lets it collect bulk data from “relevant data holders”, which include anyone who receives money belonging to another person (paragraph 13) and anyone who keeps a register, including local authority records (paragraph 17). Our page on HMRC’s bulk data gathering powers covers this in more detail.

Will HMRC compare the return with letting agent statements?

Almost always. HMRC’s Property Rental Toolkit says property income means gross rents before any deductions, such as management fees. It points out that agents often pay landlords the rent net of their fees and of other costs, some of which may be capital or otherwise not allowable. The gross rent goes in the return, and agent fees and other costs are claimed separately if they are allowable.

Expect HMRC to ask for the annual or monthly agent statements and to reconcile them with the return. Typical questions are:

Do the rents declared match the gross rents on the statements, rather than the sums paid into the landlord’s bank account?
What were the items the agent deducted, and were any of them new furniture, appliances or building work?
Were any tenancy deposits kept at the end of a tenancy? The toolkit says retained deposits should normally be included as income unless already recognised.
Are there properties the agent does not manage, and where are those rents recorded?

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How does HMRC test repairs against improvements?

This is usually the largest adjustment in a rental enquiry. HMRC’s Property Income Manual at PIM2030 treats as capital any expenditure that adds to or improves a property, and the cost of putting right a property bought in a derelict or run down state. Replacing a part with a modern equivalent normally stays revenue, and PIM2030 gives the replacement of single glazing with double glazing as an example of an allowable repair. Where repairs and improvements are done in one job, the repair part can be apportioned, but HMRC says a contractor’s split is open to review if capital work is described as repairs.

The questions follow from that: what condition the property was in when bought, whether the price was reduced because of its condition, whether it was let straight away, and what each invoice actually covers. Before and after photographs, the purchase survey and itemised invoices answer most of them. The rules themselves are covered in our guide to repairs or improvements on a rental property.

What will HMRC ask about mortgage interest?

The toolkit lists two finance cost risks. First, capital repayments must be stripped out, so HMRC asks for mortgage statements to check that only interest was claimed. Second, for residential lets an individual cannot deduct finance costs at all; relief is given as a basic rate tax reduction, which PIM2052 describes. A return that deducts mortgage interest as an expense will be corrected. See our page on landlord mortgage interest relief.

HMRC also asks what any borrowing was used for. In the Business Income Manual at BIM45700, a landlord who increases the mortgage on a let property and uses the money to buy a private home gets no relief for the interest on the new borrowing. The toolkit adds that mortgage protection life insurance premiums are not allowable.

How does HMRC deal with private and family use?

PIM2130 sets out HMRC’s approach. A property occupied rent free by a relative is outside the property income rules altogether. Where a property is let below a commercial rent, expenses can be deducted only up to the rent received, and any excess cannot be carried forward. A holiday home let commercially part of the time and used by family at other times needs its expenses apportioned.

PIM2130 accepts ordinary house sitting by a relative between lets, giving a month in a period of three years or more as a guide. For empty periods, PIM2052 says interest need not be split if the landlord is genuinely trying to let the property but cannot find a tenant. Expect questions about who lived in each property and when, what rent they paid, and how the property was advertised.

What else does HMRC commonly check?

Joint ownership. The toolkit says married couples and civil partners split rental profits equally unless they own in unequal shares and have made an election. See jointly owned rental property.
Travel. The toolkit flags claims that include home to work or other non business journeys.
Wages to relatives. HMRC asks what work was done and whether the pay matches the duties.
Dual purpose costs. PIM2010 gives the example of a family holiday at a cottage that is said to be an inspection visit; it is unlikely to pass the wholly and exclusively test.

How might the figures be adjusted?

Illustration only. Owen’s agent collects rent of £15,000 for the year, deducts management fees of £1,800 and the £6,000 cost of an extension to the kitchen, and pays Owen £7,200. Owen declared rent of £7,200 and also claimed the £1,800 fees.

Item	As filed	After enquiry
Rent	£7,200	£15,000
Agent fees	£1,800	£1,800
Kitchen extension	taken off within the net rent	nil (capital)
Profit	£5,400	£13,200

The net figure had already taken off both the fees and the capital cost of the extension, and Owen then claimed the fees a second time. The correct profit is £7,800 higher than declared. The extension may count as enhancement expenditure for capital gains tax when the property is sold, but it is not a deduction from rent.

What mistakes come up most often?

Declaring the amount the agent paid over instead of gross rent.
Claiming the whole mortgage payment, including capital, or deducting residential interest as an expense.
Treating refurbishment of a run down purchase as repairs.
Claiming full costs for a property let cheaply to a family member.
Having no record of what the agent deducted. Agents’ statements should be kept for every year that might be checked. Landlords with older undeclared income should consider the Let Property Campaign before HMRC writes.

If HMRC opens a check into your return, tax investigation insurance pays your accountant’s fees. Solar Protect cover pays up to £100,000 with no excess; it never pays tax, interest or penalties. Read how our cover works or get a quote.

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Reviewed by Christine Anderson, Broker, Solar Protect. Last reviewed 24 October 2026. Part of Accountapedia, the Solar Protect guide to UK tax and accounting. This page is general information, not personalised advice.