How do you stay ahead of the regulatory curve in the UK’s private rented sector? While the Renters’ Rights Bill has captured headlines, two other significant reforms are approaching that demand your attention. A new financial sanctions compliance duty for letting agents arrived in May 2025, followed by the rollout of Making Tax Digital (MTD) for Income Tax from April 2026.
These changes will reshape daily operations, from tenant referencing to financial record-keeping. Are you prepared for what’s to come? This guide will break down what each reform means, why it’s important, and how you can prepare to turn compliance into a business advantage.
Financial Sanctions: A New Duty for Letting Agents from May 2025
How can you protect your agency from being used for illicit activities? Financial sanctions are a tool used by the government to restrict dealings with individuals and organisations involved in serious crimes like terrorism, money laundering, and human rights abuses. From 14 May 2025, letting agents will have a separate legal duty to perform these checks.
Why are Sanctions Checks Becoming a Requirement?
The government recognises that property professionals act as gatekeepers. Criminals may attempt to use rental properties to launder money or hide assets, making it crucial for agents to identify and report any sanctioned individuals or entities before a tenancy begins.
This change officially classifies letting agents as “relevant firms,” placing them alongside estate agents, banks, and law firms. This means you will have a direct legal responsibility to conduct checks and report findings to the Office of Financial Sanctions Implementation (OFSI).
What Do the New Rules Require You to Do?
Starting in May 2025, your agency must take specific actions for every new tenancy and landlord agreement. What does this look like in practice?
You must screen every tenant, guarantor, and landlord against the official UK sanctions list. This is not just a suggestion; it’s a legal requirement. If you find a match or have a reasonable suspicion that an individual or company is on the list, you must immediately freeze any assets involved, stop the transaction, and report it to OFSI.
These duties apply to all transactions, regardless of the rent level or whether you meet the income threshold for Anti-Money-Laundering (AML) registration. You must also maintain detailed records of every check and any actions taken. This audit trail is essential to prove your compliance if an investigation ever occurs.
What are the Consequences of Non-Compliance?
Failing to comply with these new obligations carries serious penalties. Letting agents who neglect to perform sanctions checks or who proceed with a transaction involving a sanctioned party could face hefty civil fines or even criminal prosecution. Ignorance of the rules will not be accepted as a defence, so it’s vital to be prepared.
How Can Your Agency Prepare for the Change?
How can you seamlessly integrate these checks into your existing workflow? Acting now is the key to a smooth transition. Propertymark suggests several practical steps:
- Update Your Policies: Review your internal AML and compliance manuals to explicitly include mandatory sanctions screening for all tenants, guarantors, and landlords.
- Integrate Checks into Onboarding: Make sanctions screening a standard part of your Know-Your-Customer (KYC) and tenant referencing processes. Using reputable software that automatically checks official lists can streamline this and reduce human error.
- Train Your Team: Ensure all staff understand how to conduct checks, what constitutes a positive match, and the correct procedure for freezing assets and reporting to OFSI.
- Keep Meticulous Records: Establish a clear system for documenting every search, its outcome, and any follow-up actions.
It’s also important to understand the difference between sanctions checks and Politically Exposed Person (PEP) checks. A PEP is someone in a high-profile public role. Dealing with a PEP is not illegal but requires enhanced due diligence. In contrast, dealing with a sanctioned individual is prohibited and must be reported immediately.
Making Tax Digital for Income Tax: A New Era for Landlords
Are you still managing your property finances with spreadsheets and paper receipts? The way landlords report their income to HM Revenue & Customs (HMRC) is about to undergo its biggest transformation in decades.
What is Making Tax Digital and Why Does It Matter?
Making Tax Digital for Income Tax Self Assessment (MTD for ITSA) is a government initiative to modernise the tax system. It requires individuals with income from property or self-employment to keep digital records and submit regular updates to HMRC using compatible software. The goal is to improve accuracy and give taxpayers a clearer, real-time view of their tax obligations.
For landlords, this means the end of the annual tax return scramble. Instead, you’ll need to maintain digital financial records throughout the year and make quarterly submissions.
When Will MTD for Income Tax Affect You?
The start date for mandatory compliance depends on your total annual income from both property and any self-employment. Here are the key dates:
- 6 April 2026: For individuals with a combined income over £50,000.
- 6 April 2027: For individuals with a combined income between £30,000 and £50,000.
- Planned for April 2028: For those with income between £20,000 and £30,000.
The income threshold applies to your total gross income from all relevant sources, not on a per-property basis. Landlords operating through a limited company are generally unaffected as they fall under corporation tax rules.
What are the New MTD Requirements?
Once you are in scope for MTD, what will you need to do? The process involves three key obligations:
- Use Compatible Software: You must use HMRC-approved software to keep digital records of all rental income and expenses. While spreadsheets can be used, they require separate “bridging software” to communicate with HMRC.
- Submit Quarterly Updates: You will need to send a summary of your income and expenses to HMRC every three months.
- Finalise Your Tax Position: After submitting four quarterly updates, you will need to file an End of Period Statement (EOPS) and a Final Declaration to confirm your income and claim any reliefs.
This change requires a shift to real-time digital bookkeeping. Your digital records must capture all property-related income and expenses, including agent fees, insurance, repairs, and ground rent.
How Can Landlords Prepare for MTD?
How can you make the transition to MTD as smooth as possible? Early preparation is crucial.
- Assess Your Position: Calculate your total income from property and self-employment to determine when MTD will apply to you.
- Choose Your Software: Research and select an HMRC-approved software provider that suits your needs. Many platforms are designed specifically for landlords.
- Go Digital Now: Start keeping digital records of your income and expenses immediately. Learning the software and getting your data organised early will prevent stress when the deadline arrives.
- Consider the Pilot Scheme: HMRC is running a voluntary MTD pilot. Joining allows you to familiarise yourself with the process before it becomes mandatory.
- Seek Advice: Speak to an accountant or bookkeeper. They can help you set up your software, correctly categorise expenses, and guide you through the new submission process.
Turning Regulation into an Advantage
The upcoming financial sanctions duties and the move to Making Tax Digital represent a significant regulatory shift for the UK lettings industry. While these changes require adaptation, they also bring opportunities.
Robust sanctions checking enhances your agency’s reputation and protects it from risk. Meanwhile, digital bookkeeping gives landlords real-time financial insights, enabling better-informed decisions about their portfolios. By updating your policies, training your staff, and embracing digital tools now, you can confidently navigate these new obligations and strengthen your business for the future.