Cash Basis for Landlords Explained: The 2025/26 Guide

Why the Cash Basis Matters for Landlords

From 6 April 2024, the way many landlords account for rental income and expenses changed significantly. The cash basis is now the default method for unincorporated property businesses — meaning income is taxed when it is actually received, and expenses are deducted when they are paid.

This shift simplifies record-keeping for most landlords but also creates traps for those who may benefit from using the accruals basis instead. Knowing the rules, who is affected, and how to plan around them is essential to avoid tax surprises.

This guide breaks down HMRC’s 2025/26 rules on the cash basis, what landlords need to know, and how to decide whether to stick with the default or opt out.

How the Cash Basis Works

• Rental income is only taxable once it is actually received, not when invoiced.

• Expenses are deductible once paid, not when incurred.

• No need to track debtors, creditors, accruals, or prepayments.

This system is intended to simplify reporting and align tax bills more closely with real cashflow.

Who the Cash Basis Applies To

Applies to

• Individual landlords and property partnerships without corporate members.

• All levels of rental income (the old £150,000 turnover cap was abolished from April 2024).

Exclusions

• Companies and LLPs.

• Partnerships with a corporate partner.

• Landlords with specific claims or elections requiring accruals (e.g., certain loss reliefs or allowances).

Pros and Cons vs. Accruals

Pros

• Easier record-keeping.

• More predictable cashflow alignment — tax paid only on actual receipts.

• Avoids complex GAAP-style accounting.

Cons

• Can lead to higher tax in years where income receipts bunch together.

• Expenses are only deductible when cash leaves your account — timing matters.

• Landlords with large portfolios may find accruals give a fairer view of performance.

Opting Out of the Cash Basis

Landlords can choose to opt out and use the accruals basis if it better suits their circumstances. To do so, they must elect for accruals in their Self Assessment tax return each year.

This flexibility means directors and landlords must actively decide which method leads to a lower overall tax liability.

Transitional Adjustments

If switching between accruals and cash basis, HMRC requires adjustments to avoid double-counting or omitting income/expenses. These transitional rules can be complex, particularly for landlords with arrears of rent or large unpaid bills.

How Wexley Helps Landlords Use the Cash Basis Effectively

At Wexley & Associates, we guide landlords to:

• Decide whether to stick with the cash basis or opt for accruals.

• Apply transitional adjustments correctly when switching methods.

• Plan receipts and payments to manage cashflow and tax efficiently.

• Avoid costly errors in Self Assessment submissions.

With professional advice, landlords can turn the cash basis change into an opportunity rather than a compliance headache.

Don’t Let the Cash Basis Catch You Out

The default shift to cash basis accounting has changed how landlords must handle their rental income. Getting it wrong could mean overpaying tax or missing deadlines.

Contact Wexley & Associates today to review your rental accounts and ensure your property income is treated in the most tax-efficient way.

References

• HMRC Property Income Manual — PIM1092: Cash basis for landlords (overview)

• HMRC Property Income Manual — PIM1094: Cash basis for landlords (receipts and expenses)

• GOV.UK: Simpler Income Tax — Cash basis accounting

• ACCA: Cash basis changes from 2024/25 tax year

• Related Wex Insider article: Allowable Expenses & Replacement Relief Explained for Landlords 2025/26