Cash Basis vs Accruals for Landlords: Why the Default Changed and When Accruals Still Wins

Most individual landlords are now taxed on the cash basis without ever having chosen it. Since the 2024/25 tax year, cash basis is the default method for working out property profit — accruals is the one you have to actively opt into. It is a quiet reform that changed how tens of thousands of buy-to-let tax returns are prepared, and most landlords still do not know which basis their return is actually using, or whether it is the right one for them.

What changed, and when

Cash basis for property income has existed since 6 April 2017 under ITTOIA 2005 Part 3 Chapter 3A, but for its first seven years it was an opt-in method available below a receipts threshold, with accruals as the default for anyone who did nothing. Following reforms taking effect from the 2024/25 tax year, that default flipped: cash basis is now the method HMRC assumes applies to an individual landlord's property business unless accruals is specifically elected on the return, and the old receipts threshold that previously capped eligibility was removed. The practical effect is that a landlord who has never given the choice a moment's thought is very likely filing on cash basis right now, whether or not it suits how their portfolio actually runs.

The basic difference in plain terms

Accruals basis taxes rent as it is earned and expenses as they are incurred, matching income and cost to the period they relate to regardless of when money actually moves — the approach most landlords are used to from standard accounting. Cash basis instead taxes rent when it is actually received and relieves expenses when they are actually paid, full stop. Rent invoiced in March but not received until May falls into the tax year the cash arrives, not the year it was due. A repair bill paid in April for work carried out the previous December is relieved in the year of payment, not the year the liability arose.

For a landlord with straightforward, promptly-paid tenancies the two bases rarely produce a materially different answer year to year. Where it starts to matter is arrears, deposits, large one-off capital spend, and the timing of loan interest payments around a remortgage or refinance.

The interest rule that quietly favours the property cash basis

Cash basis for trades carries a well-known restriction: interest on business borrowing is capped at £500 a year for a trading business using the cash basis, pushing most trades with meaningful debt back towards accruals. That cap does not carry over to the separate property cash basis rules. A landlord using cash basis can deduct loan interest paid in the year in full, with no equivalent £500 ceiling — the only restriction in play is the section 24 finance costs rule that already limits relief for individual landlords to a basic rate tax reducer, and that rule applies identically whether the return is prepared on cash or accruals basis. This is one of the reasons the reform landed relatively painlessly for most residential landlords: the interest treatment they were used to under accruals did not get worse by moving to cash.

Capital expenditure: the area to actually check

The bigger practical difference sits with capital spend. Under accruals basis, most capital items on a rental property — a new boiler installed as an upgrade rather than a repair, a structural improvement, a vehicle used in the letting business — are dealt with through capital allowances or treated as capital and left out of the annual profit calculation entirely, spread or deferred rather than relieved in one go. Under cash basis, capital allowances are largely unavailable, but a wider range of capital expenditure on the business, cars aside, can instead simply be deducted as an expense in the year it is paid for. Whether that swap helps or hurts depends entirely on the shape of the spend: a landlord funding a big refurbishment in one tax year gets an immediate full deduction under cash basis that accruals-based capital allowances would otherwise have spread across several years, while a landlord who would have preferred to spread a large deduction against future higher-rate years can find cash basis forces the relief earlier than they wanted it.

Who is shut out of cash basis altogether

Cash basis for property income is only available to individual landlords and to partnerships made up entirely of individuals. Limited companies cannot use it under any circumstances, and neither can a partnership with even one corporate partner — both must compute rental profit under normal UK GAAP accruals accounting. This matters directly for the buy-in-personal-name-versus-company decision: a landlord weighing up incorporation is not just choosing a different tax rate and a section 24 outcome, but is also giving up cash basis and its immediate relief for capital spend, in exchange for company-only reliefs such as full capital allowances and indexation-free corporation tax treatment.

When electing back into accruals is still the right call

Electing out of cash basis and back into accruals is done on the tax return each year and is not a one-off irrevocable choice, but switching basis mid-portfolio-life can itself create timing distortions that need careful handling. Accruals still tends to suit a landlord with genuinely earned rent that is regularly outstanding at year end, where deferring the tax point on arrears through cash basis would otherwise understate current-year income and simply push the liability, unpredictably, into whichever year the tenant eventually pays. It also tends to suit anyone about to incorporate a portfolio or sell it, where continuity of accounting method into the transaction avoids an awkward part-year switch, and landlords who would rather see large capital spend relieved gradually against future profits than absorbed in a single high-income year on cash basis.

What this means in practice

• Check which basis your last return actually used — if nothing was elected, it was very likely cash basis by default from 2024/25 onward, whether or not that was the intention.
• Loan interest is not the trap it is for trades — the £500 cap on cash-basis interest relief applies to trading businesses, not to property income, so cash basis rarely disadvantages a leveraged buy-to-let on the interest side.
• Time large capital spend around the basis you are on — cash basis gives an immediate deduction for most capital costs bar cars, which can be a benefit or a wasted opportunity depending on the tax year it lands in.
• Companies never get the choice — cash basis is an individual-landlord and individual-partnership regime only, a factor worth weighing alongside the usual incorporation analysis.
• Elect back into accruals deliberately, not by default — it is available every year on the return, but is best chosen for a specific reason rather than out of habit from before the rules changed.

Common questions

Is cash basis now compulsory for landlords?

No, but it is the default. Since 2024/25, individual landlords and partnerships of individuals are automatically taxed on cash basis under ITTOIA 2005 Part 3 Chapter 3A unless accruals is actively elected on the tax return instead.

Can a limited company use the cash basis for rental income?

No. Only individual landlords and partnerships made up entirely of individuals can use cash basis. Companies and partnerships with a corporate partner must always use accruals-basis accounting.

Does the cash basis restrict loan interest relief for landlords?

Not in the way it restricts trades. The £500 annual interest cap under trading cash basis does not apply to property cash basis; interest paid in the year is deductible in full, subject only to the usual section 24 basic rate restriction that applies under both accounting bases.

When does accruals basis still make sense for a landlord?

It suits landlords with rent regularly outstanding at year end, those planning to incorporate or sell a portfolio and wanting continuity of accounting method, and anyone who would rather spread relief on large capital spend than take it all in the year of payment.

This article is general information, not personal tax advice, and tax rules change. Your own position depends on facts we cannot see from here — please take advice before acting on anything above.

← All articles