Cash Basis vs Accruals for Landlords: Which Should You Use in 2026/27?

What Cash Basis and Accruals Actually Mean for a Landlord

The two methods answer the same underlying question differently: in which tax year does a particular pound of rent or expense get counted?

Cash basis is simpler to administer day to day — it broadly mirrors what actually happens in your bank account. Accruals requires more careful period-matching but can smooth income and expenses more evenly across tax years where timing is lumpy.

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Why Cash Basis Is Now the Default

HMRC's rules on property income accounting have shifted over recent years to make cash basis the default method for the great majority of individual landlords, replacing the previous position where accruals was the default and cash basis needed to be elected. This mirrors the equivalent default already used for many smaller sole trader businesses.

Practically, this means:

• If you're an individual landlord and haven't made any specific election, you should assume you're on cash basis unless you've deliberately opted for accruals.
• If you actively prefer accruals — for example because your bookkeeping software is already set up that way, or you want smoother period-matching — you need to make an election to use it.
• Companies are excluded from this default entirely and must use accruals (GAAP-compliant) accounting for property income regardless of size.

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Who Is Excluded From Cash Basis

If your rental activity is run through a limited company (increasingly common among landlords managing portfolios, partly for mortgage interest relief reasons), cash basis simply isn't an option — you're on accruals regardless of preference.

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Worked Example: Same Facts, Different Basis

A landlord lets a single property. In March 2026, a tenant pays £3,600 covering rent for March, April and May (i.e., £1,200 for March 2026, and £2,400 relating to the 2026/27 tax year). A boiler service costing £180 was invoiced in March 2026 but paid in April 2026.

Neither approach changes the total tax paid over the life of the property — it only changes which tax year specific amounts land in, which can matter for managing which tax band you fall into in a given year, or around the timing of major repairs.

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Mortgage Interest and Finance Costs: No Difference Here

Whichever basis you use, the restriction on relief for mortgage interest and other finance costs — relief given as a basic-rate (20%) tax reduction rather than a deduction against rental income — applies identically. Switching accounting basis does not change how finance costs are relieved; it only changes the timing of when rental income and non-finance expenses are recognised.

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Should You Actively Elect Accruals Instead?

Reasons a landlord might prefer to elect accruals despite the cash-basis default:

• Smoother year-to-year profit, useful if you're close to a tax band threshold (such as the £50,270 higher-rate threshold, or the £100,000 personal allowance taper) and want expenses matched to the year the work relates to rather than when paid.
• Consistency with existing accounting software already set up on an accruals basis for other business interests.
• Larger, more complex portfolios where period-matching gives a more accurate ongoing picture of business performance for your own management purposes, separate from the tax return itself.

For most landlords with straightforward, single or few-property arrangements, cash basis is simpler and requires less bookkeeping discipline — which is precisely why HMRC made it the default.

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Switching Between Methods

Landlords can elect to change basis between tax years, but the switch requires transitional adjustments so that income or expenses aren't counted twice, or missed entirely, across the changeover. For example, rent invoiced but not yet received at the point of switching from accruals to cash basis needs specific treatment to avoid it disappearing from both years' calculations. Given the risk of getting this wrong, professional advice is worthwhile for anything beyond the simplest single-property switch — particularly as Making Tax Digital for Income Tax reporting becomes mandatory for more landlords over the coming tax years, making consistent, correctly-applied record-keeping more important than ever.