diff --git a/azure/services/agentpools/spec.go b/azure/services/agentpools/spec.go
index 52bf791be24..fe0c9820845 100644
--- a/azure/services/agentpools/spec.go
+++ b/azure/services/agentpools/spec.go
@@ -294,7 +294,7 @@ func (s *AgentPoolSpec) Parameters(existing interface{}) (params interface{}, er
 			VnetSubnetID:         vnetSubnetID,
 			EnableNodePublicIP:   s.EnableNodePublicIP,
 			NodePublicIPPrefixID: s.NodePublicIPPrefixID,
-			Tags:                 converters.TagsToMap(s.AdditionalTags),
+			Tags:                 *to.StringMapPtr(s.AdditionalTags),
 		},
 	}
 
diff --git a/azure/services/agentpools/spec_test.go b/azure/services/agentpools/spec_test.go
index dcbf932ad54..49f6c0ee0e6 100644
--- a/azure/services/agentpools/spec_test.go
+++ b/azure/services/agentpools/spec_test.go
@@ -26,6 +26,7 @@ import (
 	"github.com/google/go-cmp/cmp"
 	. "github.com/onsi/gomega"
 	"github.com/pkg/errors"
+	infrav1 "sigs.k8s.io/cluster-api-provider-azure/api/v1beta1"
 	"sigs.k8s.io/cluster-api-provider-azure/azure"
 )
 
@@ -51,6 +52,7 @@ var (
 		Version:           to.StringPtr("fake-version"),
 		VnetSubnetID:      "fake-vnet-subnet-id",
 		Headers:           map[string]string{"fake-header": "fake-value"},
+		AdditionalTags:    infrav1.Tags{"fake": "tag"},
 	}
 	fakeAgentPoolSpecWithoutAutoscaling = AgentPoolSpec{
 		Name:              "fake-agent-pool-name",
@@ -73,6 +75,7 @@ var (
 		Version:           to.StringPtr("fake-version"),
 		VnetSubnetID:      "fake-vnet-subnet-id",
 		Headers:           map[string]string{"fake-header": "fake-value"},
+		AdditionalTags:    infrav1.Tags{"fake": "tag"},
 	}
 	fakeAgentPoolSpecWithZeroReplicas = AgentPoolSpec{
 		Name:              "fake-agent-pool-name",
@@ -95,6 +98,7 @@ var (
 		Version:           to.StringPtr("fake-version"),
 		VnetSubnetID:      "fake-vnet-subnet-id",
 		Headers:           map[string]string{"fake-header": "fake-value"},
+		AdditionalTags:    infrav1.Tags{"fake": "tag"},
 	}
 
 	fakeAgentPoolAutoScalingOutOfDate = containerservice.AgentPool{
@@ -241,6 +245,7 @@ func fakeAgentPoolWithProvisioningStateAndCountAndAutoscaling(provisioningState
 			OsDiskType:          containerservice.OSDiskType("fake-os-disk-type"),
 			OsType:              containerservice.OSType("fake-os-type"),
 			ProvisioningState:   state,
+			Tags:                map[string]*string{"fake": to.StringPtr("tag")},
 			Type:                containerservice.AgentPoolTypeVirtualMachineScaleSets,
 			VMSize:              to.StringPtr("fake-sku"),
 			VnetSubnetID:        to.StringPtr("fake-vnet-subnet-id"),
@@ -266,6 +271,7 @@ func fakeAgentPoolWithAutoscalingAndCount(enableAutoScaling bool, count int32) c
 			OsDiskType:          containerservice.OSDiskType("fake-os-disk-type"),
 			OsType:              containerservice.OSType("fake-os-type"),
 			ProvisioningState:   to.StringPtr("Succeeded"),
+			Tags:                map[string]*string{"fake": to.StringPtr("tag")},
 			Type:                containerservice.AgentPoolTypeVirtualMachineScaleSets,
 			VMSize:              to.StringPtr("fake-sku"),
 			VnetSubnetID:        to.StringPtr("fake-vnet-subnet-id"),
diff --git a/azure/services/managedclusters/spec.go b/azure/services/managedclusters/spec.go
index 2295e3760a8..b3add74f0aa 100644
--- a/azure/services/managedclusters/spec.go
+++ b/azure/services/managedclusters/spec.go
@@ -190,6 +190,7 @@ func (s *ManagedClusterSpec) Parameters(existing interface{}) (params interface{
 			Type: containerservice.ResourceIdentityTypeSystemAssigned,
 		},
 		Location: &s.Location,
+		Tags:     *to.StringMapPtr(s.Tags),
 		ManagedClusterProperties: &containerservice.ManagedClusterProperties{
 			NodeResourceGroup: &s.NodeResourceGroup,
 			EnableRBAC:        to.BoolPtr(true),
@@ -217,10 +218,6 @@ func (s *ManagedClusterSpec) Parameters(existing interface{}) (params interface{
 		},
 	}
 
-	if tags := *to.StringMapPtr(s.Tags); len(tags) != 0 {
-		managedCluster.Tags = tags
-	}
-
 	if s.PodCIDR != "" {
 		managedCluster.NetworkProfile.PodCidr = &s.PodCIDR
 	}
@@ -327,6 +324,12 @@ func (s *ManagedClusterSpec) Parameters(existing interface{}) (params interface{
 		// AgentPool changes are managed through AMMP.
 		managedCluster.AgentPoolProfiles = existingMC.AgentPoolProfiles
 
+		// Do not trigger an update because of nil/empty discrepancies between the two sets of tags.
+		if len(existingMC.Tags) == 0 && len(managedCluster.Tags) == 0 {
+			existingMC.Tags = nil
+			managedCluster.Tags = nil
+		}
+
 		diff := computeDiffOfNormalizedClusters(managedCluster, existingMC)
 		if diff == "" {
 			return nil, nil
diff --git a/azure/services/managedclusters/spec_test.go b/azure/services/managedclusters/spec_test.go
index 7ec44439139..74743b3740d 100644
--- a/azure/services/managedclusters/spec_test.go
+++ b/azure/services/managedclusters/spec_test.go
@@ -134,6 +134,19 @@ func TestParameters(t *testing.T) {
 				g.Expect(result.(containerservice.ManagedCluster).KubernetesVersion).To(Equal(to.StringPtr("v1.22.99")))
 			},
 		},
+		{
+			name:     "delete all tags",
+			existing: getExistingCluster(),
+			spec: &ManagedClusterSpec{
+				Tags: nil,
+			},
+			expect: func(g *WithT, result interface{}) {
+				g.Expect(result).To(BeAssignableToTypeOf(containerservice.ManagedCluster{}))
+				tags := result.(containerservice.ManagedCluster).Tags
+				g.Expect(tags).NotTo(BeNil())
+				g.Expect(tags).To(BeEmpty())
+			},
+		},
 	}
 	for _, tc := range testcases {
 		tc := tc