PIM1092 - Cash basis for landlords: overview
Source: gov.uk (2025-07-24)


Overview

The cash basis is a simpler way of reporting the profits or losses of a property business. It is used as an alternative to calculating them in accordance with generally accepted accounting practice (GAAP). Since the 2017-18 tax year, it has been the default basis for most property businesses that are run by individuals or partnerships with receipts for the tax year of £150,000 or less.

Under the cash basis, property business receipts and expenses are accounted for when money is received or paid, not on the date the income is earned or expenses incurred. So instead of preparing a balance sheet and profit and loss account, the business records only need to show money when it comes in or goes out.

As receipts are recognised in the period in which the money is received and expenses in the period in which the money is paid, there is no need to account for debtors or creditors.

The profit or loss to be reported under the cash basis is found by calculating:

subject to any adjustment required or authorised by law in calculating profits for income tax purposes. Certain trading income rules in Part 2 of the Income Tax (Trading and Other Income) Act 2005 (ITTOIA05) apply for the purposes of computing the profits of a property business using the cash basis. They are set out in S272ZA(2) and are listed in PIM1093 (https://www.gov.uk/hmrc-internal-manuals/property-income-manual/pim1093).

Eligibility

Since the 2017-18 tax year, the cash basis has been the default way of reporting the profits or losses of a property business. However, profits or losses of a tax year must instead be calculated in accordance with GAAP in a tax year in which any of the following conditions applies (ITTOIA05/S271A).
- Condition A: The property business is run by a company, limited liability partnership (LLP), trustees or a corporate firm (a partnership with at least one member which is not an individual person).
- Condition B: Receipts that would be brought into account under the cash basis for the tax year exceed £150,000. This threshold is proportionally reduced if the property business is only carried out for part of the tax year.
- Condition C: If the property business is being carried on jointly with a spouse or civil partner and they are treated as receiving the income in equal shares (under s836 of ITA07), the same basis must be used by both individuals. If they are beneficially entitled to the income in unequal shares and make a declaration under S837 of ITA 2007 to be taxed according to those shares, Condition C does not apply.
- Condition D: Business premises renovation allowance (BPRA) has been claimed, and a balancing event in the tax year gives rise to a balancing adjustment.
- Condition E: An individual elects to use GAAP. The election must be made within one year of the filing date for that tax year.
BPRA ceased to be available from 6 April 2017, so Condition D could only exclude a person from the cash basis in tax years where a balancing charge might arise:
- for expenditure incurred before 6 April 2014, a balancing charge might arise up to 6 April 2021 (up to 7 years after the expenditure).
- for expenditure incurred between 6 April 2014 and 6 April 2017, a balancing charge might arise up to or up to 6 April 2022 (up to 5 years after the expenditure).
See the Capital Allowances Manual at page CA45100 (https://www.gov.uk/hmrc-internal-manuals/capital-allowances-manual/ca45100).

Rent-a-Room Relief

Rent-a-room relief (see PIM4000 (https://www.gov.uk/hmrc-internal-manuals/property-income-manual/pim4000) onwards) is available where a person calculates the profits of their property business using the cash basis as it is under GAAP.

Under the cash basis it is the total amount of rent-a-room receipts received (including capital receipts that are brought into account under the cash basis rules), rather than owed, during the tax year that must be used to determine if receipts are above the exemption limit.

Furnished Holiday Lettings

The rules for furnished holiday lettings (see PIM4100 (https://www.gov.uk/hmrc-internal-manuals/property-income-manual/pim4100) onwards) apply when using the cash basis as when using GAAP.

However, the special rules for capital expenditure differ between GAAP and cash basis. When calculating profits of a furnished holiday let using GAAP, capital allowances can be claimed for capital expenditure on plant and machinery (e.g. furniture). When the cash basis is used, the full amount of capital expenditure can be deducted from the profits of the tax year when the expenditure is actually paid (see PIM1095 (https://www.gov.uk/hmrc-internal-manuals/property-income-manual/pim1095)).

The furnished holiday lettings rules cease to apply in tax years commencing on or after 6 April 2025 for Income Tax and for Capital Gains Tax, and 1 April 2025 for Corporation Tax and for Corporation Tax on chargeable gains.

Loss Relief

Losses arising from a property business can broadly be relieved in the same way under the cash basis as under GAAP.

However, under section 127BA Income Tax Act 2007 no relief against general income (sideways loss relief) is available for the losses of a property business calculated under the cash basis. This includes the property businesses of partnerships.

Capital Receipts

Under ITTOIA05/S307E receipts from the disposal of an asset should be treated as an income receipt, not a chargeable gain, where the individual deducted the cost of the asset from profits under the cash basis. See PIM1095 (https://www.gov.uk/hmrc-internal-manuals/property-income-manual/pim1095) for deduction of capital expenditure under the cash basis and receipts from disposals of those assets.

In other circumstances the normal capital gains tax rules apply.