New cash basis for landlords

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Landlords (individuals with income from a property business not in excess of £150k) are now able to use the cash basis rather than the generally accepted accounting practice (GAAP) to calculate their taxable profits. New legislation assumes cash basis to be the default method of calculation, unless a landlord opts out or has rental receipts for the business in excess of the threshold in which case they will continue to use GAAP.

The cash basis works out the taxable profits on a ‘cash in-cash out’ basis. Up until 6 April 2017, landlords were required to declare their rental income and expenses on an accruals basis, which matches income and expenditure to the accounting period/tax year to which they relate even if the rents were not actually received during that particular period. For most individual landlords the two methods will have the same results however, it can make a significant difference when payments from tenants are late.

If you wish to opt out of the new cash basis system you have to opt out annually on your tax return by the one-year anniversary following the 31 January Self-Assessment deadline.

If you jointly own the property business, you can decide individually how to calculate your profits except in the case of the joint owner being your spouse/civil partner.

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