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HMRC Crackdown: The Hidden Risks for Landlords in Surrey

Tue 30 Sep 2025

Why Using a Managing Agent is More Important Than Ever: Avoiding Costly Tax Mistakes as a Landlord

Being a landlord in 2025 isn’t quite the same as it used to be. While rental demand remains high in our local Surrey area, the pressure on landlords to comply with increasingly complex tax and regulatory requirements has never been greater. We’ve just heard that for the 2024-2025 tax year, the HMRC recovered a record-breaking £107 million from tax investigations into landlords! That is a very clear signal that the taxman is cracking down.

At Wills & Smerdon, we often meet landlords who are confident in managing their properties themselves, and we also meet many who, when things go wrong, say they wish they’d listened, and handed over their property management from day one. After all, we train our team constantly to keep up with ever-shifting legislation and the stringent requirements of the PRS, so unless you are a full-time landlord, with enough resources at your disposal, w hether you're a seasoned investor or an ‘accidental landlord’, failing to understand your financial responsibilities can be costly.

The Rise of the Accidental Landlord

Many of the landlords now under HMRC scrutiny are those who never intended to rent out a property. According to Price Bailey, the accountancy firm behind the Freedom of Information request that revealed HMRC’s recent haul, accidental landlords make up a significant share of disclosures. We come across so many “accidental landlords”, those who, perhaps inherited a property, moved in with a partner, or were just unable to sell their home and ended up renting it out - so all of these landlords are unlikely to be in the right position to self-manage, and that is why costly mistakes are being made.

Without professional guidance, it's all too easy to make errors; from failing to declare income to misclassifying expenses. And with HMRC now able to reclaim up to 20 years [yes, 20 years] of unpaid tax and issue fines of up to 200% for offshore holdings, the risk is real and very serious.

Common Pitfalls: Where Landlords Go Wrong

Here are just a few of the mistakes we see:

Confusing Capital and Revenue Expenditure: Installing a brand-new, upgraded kitchen? That’s a CAPITAL expense - and not deductible from your rental income. But if you’re simply repairing or replacing an existing kitchen “like-for-like” then that is a deductible expense. Get this wrong, and your tax return could raise red flags.

Phantom Profits from Mortgage Interest Relief Changes: The reduction and eventual withdrawal of mortgage interest relief has caught many landlords off guard. Properties might look like they’re making a profit on paper, but that’s only because mortgage costs aren’t fully counted anymore, and that can lead landlords to report the wrong income and get unexpected letters from HMRC.

How mortgage interest relief really works: Before 2017, landlords could deduct all their mortgage interest from their rental income before calculating tax. But now, that’s changed. You can’t deduct the interest directly anymore. Instead, you get a 20% tax credit on your mortgage interest, which isn’t always enough to cover the real cost, especially for higher-rate taxpayers.
So the calculation looks more like this:
Full rental income is taxed (not after deducting mortgage interest)
Then, you get a 20% tax credit on your mortgage interest payments
This often means you're paying tax on income you never actually pocketed, and it’s catching landlords out.

Lack of Clear Accounting Records:  With Making Tax Digital coming in April 2026, landlords will be required to submit income and expenses quarterly. That means real-time reporting, and landlords who don’t keep meticulous records are at risk of falling behind - or worse, being penalised.


The Wills & Smerdon Advantage

So how can you protect yourself? That’s where a professional managing agent makes all the difference.

At Wills & Smerdon, our lettings team doesn’t just collect rent and organise repairs. We offer a full property management service, backed by clear accounting practices and a team of qualified, experienced professionals who understand the ever-changing legal and financial landscape.

Here’s how we help:
  • Transparent Accounting: We use a top-rated customer management system, so that our landlords receive regular, detailed statements with income and expenditure clearly outlined. Need reports for your accountant? We’ve got you covered.
  • Up-to-date Legal Knowledge: We stay ahead of the curve on lettings legislation, tax law, and compliance, spending hours on our continued professional development in the lettings & property management field, so that you don’t have to.
  • Support with Tax Disclosures: Worried you might have made a mistake in the past? We can guide you through the process of making a voluntary disclosure, avoiding harsher penalties down the line.
  • Peace of Mind: With HMRC increasing its use of data-matching - including records from letting platforms, lenders and the Land Registry - there's no hiding. Working with a managing agent means fewer sleepless nights and more confidence in your property portfolio.
With over 100,000 landlords already caught in HMRC’s net, and millions more under the radar, now is really NOT the time to go it alone. And don’t forget: Management fees from a letting agent are tax deductible! This means you can offset them against your rental income when calculating tax. So not only do you get professional support and peace of mind, but it can also reduce your tax bill.

Why wouldn’t you let Wills & Smerdon help you navigate the red-tape of the lettings landscape? Whether you're letting a flat in Horsley or a cottage in Shere, our team is here to ensure your investment is protected, compliant, and stress-free.

Get in touch with us today to learn more about our property management services: 01483 284141