Making Tax Digital for Income Tax Self-Assessment (MTD for ITSA) changes the way jointly owned rental properties are reported to HMRC. Under MTD, each joint owner is treated as a separate taxpayer, with individual reporting and compliance obligations. Each owner must maintain digital records, submit quarterly updates, and file their annual tax return independently.
For property owners with multiple stakeholders, understanding MTD for profit splits is crucial. It's not just about compliance; it's about setting up systems that prevent errors, avoid penalties, and ensure each owner’s income and expenses are accurately reported throughout the year.
Key Takeaways
Each co-owner must maintain their own digital records and file quarterly updates under MTD, regardless of property management
MTD compliance is based on your individual qualifying income, not total property income
Rental profit is allocated by ownership percentage. HMRC defaults to 50:50 for spouses/civil partners unless a valid declaration (e.g., Form 17) is made
Digital records must link transactions to the correct owner’s share, with accurate date-stamped entries
Choose between standard quarterly updates (income + expenses) or income-only updates, with expenses reported at year-end
HMRC allows simplified record-keeping for joint owners by submitting one entry per category per period
Use MTD-recognised software that supports profit allocation, income-only updates, and year-end adjustments
What Are Profit Splits and Why They Matter Under MTD?
In property ownership, profit splits refer to how rental income and expenses are divided between co-owners based on their ownership stake. This split determines each owner's taxable income from the property and forms the foundation of their individual tax obligations.
Under MTD, profit splits are critical because each joint property owner must report their share of rental income and expenses separately. This means that each owner needs to maintain individual digital records and submit their own quarterly updates.
Accurate profit splits ensure that each owner reports the correct portion of income, which directly affects their tax liability. Mismanagement of the split can lead to errors in filings and potential penalties, making it essential to keep clear records and properly allocate profits between owners.
Who Needs to Comply with MTD for Profit Splits?
Individual Threshold Assessment
MTD for profit splits applies based on individual qualifying income thresholds, not total property income. From 6 April 2026, MTD becomes mandatory if your individual share of gross qualifying income exceeds £50,000. This threshold drops to £30,000 from 6 April 2027 and £20,000 from 6 April 2028.
Lets Learn With Example:
If a property generates £90,000 in annual rent with a profit split of 60% to 40%, one owner would receive £54,000 and the other £36,000 in qualifying income.
With an MTD threshold of £50,000 in tax year 2026/27, the owner earning £36,000 would not need to comply, while the other owner, whose income exceeds the threshold, would be required to follow MTD regulations in that year.
If you own multiple jointly owned properties, your profit share across all properties must be aggregated to determine your MTD obligation. You must also include any self-employment income in this calculation.
Qualifying Income Calculation for Joint Owners
When calculating whether you meet the threshold, use gross income figures before deducting expenses. However, if you jointly own a property and If you only know your share after expenses have been taken off (for example, because a letting agent or co‑owner provides you with a net amount), HMRC will use that net figure as your qualifying income when checking whether you meet the MTD threshold.
If, however, you are aware of the expenses and know the gross income (before deductions), HMRC will use the gross income to assess your qualifying income.
Lets Learn With Example:
A rental property earns £12,000 in rent for the year
Total expenses (repairs, agent fees, insurance, etc.) are £4,000
Net income = £8,000
If you own 50%, the agent sends you a statement saying:
“Your share of income: £4,000”
That statement is the notice of your share of the income.
Need help Calculating your MTD Threshold with Profit Splits?
Our MTD Calculator can help you determine your exact compliance date based on your ownership structure.
The Legal Framework: How Profit Splits Are Determined?
Default Profit Split Rules
Rental income is normally taxed on each owner according to their beneficial entitlement (e.g., 50/30/20). A declaration of trust can evidence unequal beneficial ownership. If there’s no evidence of a different beneficial split, HMRC will often use the legal ownership as the starting point.
Special Rules for Spouses and Civil Partners
Spouses and civil partners face a unique default assumption. HMRC automatically treats jointly owned property as owned 50/50 for tax purposes, regardless of actual ownership percentages, unless a valid Form 17 declaration is made.
Form 17 (Declaration of beneficial interests in joint property) allows married couples and civil partners to declare unequal beneficial ownership. Once submitted and accepted by HMRC, the actual ownership percentages apply for tax purposes, affecting how profit splits are calculated and reported under MTD.
Filing Form 17 requires both spouses to sign the declaration and provide evidence of the actual beneficial ownership (such as a declaration of trust).
Other Joint Ownership Arrangements
Siblings, friends, business partners, and other non-married co-owners always use actual beneficial ownership percentages. There is no default 50/50 assumption for these arrangements.
Written agreements documenting ownership percentages, decision-making responsibilities, and profit distribution arrangements are essential. These agreements provide audit trails if HMRC queries your reported profit splits and help prevent disputes between co-owners.
When ownership changes during a tax year, through sale, transfer, or adjustment of beneficial interests, this affects MTD for profit splits reporting. You must notify HMRC of ownership changes and adjust your profit share calculations from the effective date of the change.
Digital Record-Keeping Requirements for MTD Profit Splits
Core Digital Record Components
Under MTD for profit splits,digital records must capture three fundamental elements: the amount of each transaction, the date it occurred, and the category it belongs to using HMRC's prescribed classifications.
HMRC requires separate record-keeping for different business sources. UK property, foreign property, and self-employment are treated as distinct income sources, each requiring its own set of digital records. For landlords with both solely owned and jointly owned properties, good practice suggests treating these as separate categories within your UK property records to maintain clarity.
Recording Your Share of Profits
The key challenge in MTD for profit splits is ensuring your digital records capture only your share of income and expenses, not the property's total figures.
When rent is received: Your digital record should show your ownership percentage of that payment. If a property generates £2,000 monthly rent and you own 60%, your digital record shows £1,200 income for that month.
The same principle applies to expenses: When a £500 repair bill is paid, your digital record shows £300 (60% of £500) as your share of the expense.
This allocation must happen at the transaction level in your digital records. You cannot record the property's full income and expenses and then apply a percentage split at year-end. MTD requires transaction-level accuracy because quarterly submissions are cumulative, year-to-date totals extracted directly from these underlying records.
Quarterly Reporting of Profit Splits Under MTD
When reporting jointly owned property income under MTD, landlords make two separate choices: how their quarterly periods are structured, and what information is included in each update.
Quarterly Period Options
You can submit quarterly updates using either:
Standard tax-year quarters (aligned to the UK tax year starting 6 April) OR
Calendar quarters (ending on the last day of each calendar month)
Update | Standard Quarter Period | Calendar Quarter Period | Submission Deadline |
|---|---|---|---|
Q1 | 6 April – 5 July | 1 April – 30 June | 7 August |
Q2 | 6 July – 5 October | 1 July – 30 September | 7 November |
Q3 | 6 October – 5 January | 1 October – 31 December | 7 February |
Q4 | 6 January – 5 April | 1 January – 31 March | 7 May |
Whichever option you choose, both options have identical submission deadlines.
Essential Software Features for Profit Splits
For jointly owned properties under MTD, HMRC-recognised software is required to track income, submit quarterly updates, and finalise year-end figures. Mortgage interest must be recorded separately, and software should allow corrections to maintain accurate cumulative figures. Clear allocation of ownership percentages and separation of jointly and solely owned properties are crucial for accurate submissions.
Explore HMRC-recognised MTD software
Choosing the right HMRC-recognised MTD software is especially important for jointly owned properties, where profit allocation must be recorded accurately at transaction level. If you’re unsure which provider supports joint ownership, foreign property, or income-only updates, you can compare options using our MTD Software Finder Tool.
Bridging software for spreadsheet users
Spreadsheets can be used, but you’ll still need compatible software to keep digital records and send updates/returns (this is where bridging tools come in).
Penalties and Compliance for MTD Profit Splits
The Points-Based Penalty System for Late Submissions
MTD introduces a fundamentally different penalty framework compared to traditional Self-Assessment. Instead of immediate financial penalties for single missed deadlines, HMRC uses a points-based system designed to encourage behavioural improvement.
For Quarterly Submissions | For Annual Submission (Final Declaration) |
|---|---|
The penalty threshold is 4 points. Each late quarterly submission earns one penalty point. Once you reach 4 points, HMRC charges a £200 penalty for that failure and every subsequent late submission charges another £200. However, your points total stops increasing at the threshold. | The system works separately. Each late annual return earns one penalty point, and once you reach 2 points, a £200 penalty is charged. After reaching this threshold, every further late annual return also triggers another £200 penalty, without adding more points. |
Late Payment Penalties
This apply independently of submission penalties and can be charged even if your filings are on time. If tax remains unpaid 15 days after the due date, HMRC applies a penalty of 3% of the outstanding amount. A further 3% penalty applies if still unpaid within 30 days, and 10% will be charged if the deadline crosses 31 days. interest continues to accrue daily until the tax is paid in full.
Individual Penalty Responsibility
For MTD for profit splits, penalty responsibility is strictly individual. Each co-owner has their own penalty points, their own compliance record, and their own financial penalty exposure based solely on their submission timeliness.
This means one co-owner can have zero penalty points while another has reached the threshold and faces ongoing £200 penalties. Co-owners' compliance records are entirely independent.
Conclusion
Making Tax Digital requires individual reporting for each joint property owner, even when income and expenses are shared. Each owner must maintain their own digital records, submit quarterly updates, and manage deadlines and penalties, regardless of shared bank accounts or informal management.
With the right preparation, MTD can be manageable. HMRC easements ease administrative tasks, while quarterly reporting enhances financial visibility and efficiency. Joint owners who use suitable software, establish clear processes, and seek professional guidance can stay compliant and gain better oversight of their investments.
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