How Landlords Can Claim Tax Relief on Unpaid Rent in the UK

Tax Relief for Unpaid Rent

With the current economic pressures, many tenants are finding it difficult to keep up with rent payments. As a result, landlords may face financial loss due to unpaid rent. Unless a landlord has insurance that covers rental arrears, the way tax relief can be claimed will depend on the accounting method used—cash basis or accruals basis.

Cash Basis Method

The cash basis is a straightforward accounting approach based on actual money received and paid out. It is the default method for most unincorporated landlords who earn £150,000 or less per year in rental income.

How tax relief works

• Under the cash basis, rental income is only recorded when it is actually paid, and expenses are recorded only when they are settled.

• This means unpaid rent is not included in taxable profits, so relief for bad debts happens automatically.

• If the rent is eventually paid later, or recovered through insurance, it is simply counted as income in the period it is received.

Accruals Basis Method

Landlords may need to use the accruals basis if they do not qualify for the cash basis—such as those earning more than £150,000 per year or operating through a limited company. Eligible landlords may also voluntarily choose this method.

How it works

• Income and expenses are matched to the period they relate to, regardless of when the money actually moves.

• Unpaid rent is still recorded as income for the relevant accounting period and is shown as a debtor on the balance sheet.

Relief for bad debts

• Tax rules allow relief for bad or doubtful debts.

• Relief can be claimed when it becomes clear that the debt is unlikely to be recovered.

• If a tenant eventually pays late, no relief is permitted, as the rent must still be included in the profit of the original period.

Final Thoughts

The possibility of claiming tax relief for unpaid rent depends on how the landlord prepares their accounts. While the cash basis provides automatic relief, the accruals basis requires evidence that the debt has become genuinely irrecoverable before relief is allowed.

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