Background: Struggling to Sell Two Properties

A landlord in his seventies has encountered significant challenges with two properties he intended to sell to avoid Making Tax Digital (MTD) obligations. He initially planned to sell both properties to keep his income below the £50,000 MTD threshold. However, after two years of attempting to sell, including marketing efforts, property updates costing £3,000, and changing agents, both properties remain unsold and empty.

One property is located in Leeds and the other in Huddersfield. Despite efforts such as serving a Section 21 notice and involving bailiffs to regain possession, the Leeds property has not sold. The local agent marketed it for over a year at what was considered a reasonable price, and a new agent confirmed the price was appropriate, yet no sale has been achieved. The Huddersfield property is in a similar position, also empty and unsaleable.

Financial and Mortgage Considerations

Both properties are in negative equity, which the landlord has been paying down. The mortgage terms on both properties expired two years ago but have been extended until May 2026. Given the difficulties in selling, the landlord is considering remortgaging and investing part of his pension pot into the properties.

This plan involves re-letting the properties, which would increase his gross rental income from £39,000 to approximately £57,000. This increase in rental income raises questions about the landlord’s tax obligations under Making Tax Digital.

Making Tax Digital: When Does It Apply?

The landlord asks whether MTD will become compulsory if he rents out the properties instead of selling them. Under current UK tax rules, landlords with rental income exceeding £50,000 must comply with MTD for Income Tax, which requires digital record-keeping and quarterly reporting to HMRC.

In this case, the landlord’s rental income would exceed the £50,000 threshold once the properties are let again, triggering MTD obligations. This means he would need to maintain digital records and submit quarterly updates to HMRC, which can be complex for landlords unfamiliar with digital accounting.

Impact of New Tenancy Agreements on Selling

Another concern raised is whether entering new tenancy agreements will affect the ability to sell the properties in the future. While tenancy agreements create legal rights for tenants, landlords can still sell properties with sitting tenants. However, the presence of tenants may affect the sale process, potentially limiting buyer interest or affecting sale price.

The landlord wonders if the new tenancy agreements will “ever allow me to sell up,” reflecting uncertainty about managing rental commitments alongside future plans to sell.

What This Means for Landlords

This case illustrates the challenges landlords face when property sales do not proceed as planned, and rental income increases beyond MTD thresholds. Landlords must consider the tax implications of switching from selling to renting, including compliance with digital record-keeping and reporting requirements.

Furthermore, landlords should be aware that while tenancy agreements do not prevent property sales, they can complicate the process. Seeking professional advice on remortgaging, tax compliance, and tenancy management is advisable to navigate these complexities.

Conclusion

The landlord’s experience underscores the importance of understanding Making Tax Digital rules and their impact on rental income. As rental income rises above the £50,000 threshold, MTD compliance becomes mandatory, requiring landlords to adapt their accounting practices. Additionally, balancing tenancy agreements with future sale plans requires careful consideration.

Suggested internal link anchors
– Making Tax Digital
– rental income thresholds
– landlord tax compliance
– remortgaging rental properties
– tenancy agreements and property sales
– negative equity in buy-to-let
– Section 21 notices
– HMRC digital record-keeping
– pension investment in property
– property marketing strategies
– bailiffs and possession orders
– letting agent fees and valuations

TLA update

TLA is launching a new Trusted Partners Hub in Q1 2026, featuring verified and approved service providers selected to support landlords, tenants, and property management businesses. We are inviting legal, trades, insurance, financial, mortgage, tenant screening, and other service providers to register their interest here: https://landlordassociation.org.uk/become-a-tla-service-partner/