Unpaid Rent & Bad Debts: Do Landlords Get Tax Relief? (2026/27)
Last updated 24 June 2026 · 8 min read · By the LandlordTaxAi Editorial Team
The short answer
It depends on your accounting basis. On the cash basis (the default for most landlords under £150,000 gross rent) you’re only taxed on rent you actually receive — so unpaid rent is never taxed and needs no relief. On the accruals basis, you’re taxed on rent due, but can claim bad-debt relief once it’s genuinely irrecoverable.
A tenant falls into arrears and you’re left chasing rent you may never see. The natural worry: am I being taxed on money I never received? The answer hinges entirely on which accounting basis you use — and most landlords are on the one that protects them automatically.
This guide explains how unpaid rent is treated on each basis, when you can claim bad-debt relief, and what to do under Making Tax Digital. For the basics of the two methods, see cash basis records for landlords.
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Rental Profit Calculator (Rent Received)
Enter rent actually received and your costs to see your taxable profit on the cash basis for 2026/27.
Result
- Taxable profit (rent − expenses)
- £11,200
- Income Tax at 20%
- £2,240
- Less mortgage interest credit (20%)
- − £1,000
- Tax due on this property
- £1,240
- Income after tax
- £9,960
Cash basis taxes rent received only. Accruals basis differs. Estimate only.
Cash basis: you’re only taxed on what you receive
Since 2017/18, the cash basis is the default for most individual landlords whose gross rents are under £150,000 a year. On this basis you record income when the money arrives and expenses when you pay them.
The effect for unpaid rent is simple and reassuring: if a tenant doesn’t pay, you never record it as income, so you’re never taxed on it. There’s no separate bad-debt relief to claim because the rent was never in your figures.
If you’re on the cash basis, arrears look after themselves — you only ever pay tax on rent actually banked. This is why the cash basis suits most smaller landlords.
Accruals basis: tax on rent due, plus bad-debt relief
On the accruals basis (traditional accounting, required above £150,000 or chosen voluntarily), you’re taxed on rent earned in the period — whether or not the tenant has paid. That means arrears can be taxed before you’ve received them.
To balance this, the accruals basis lets you claim bad-debt relief: you deduct a debt once it’s genuinely irrecoverable, not merely late. If the tenant later pays, you bring that amount back in as income.
| Basis | Taxed on | Unpaid rent |
|---|---|---|
| Cash basis (default under £150k) | Rent received | Never taxed — no relief needed |
| Accruals basis | Rent due | Taxed, but bad-debt relief once irrecoverable |
A debt that’s simply overdue is not yet a bad debt. You need reasonable grounds that it won’t be paid — for example the tenant has absconded or a recovery attempt has failed.
What counts as a genuinely irrecoverable debt
HMRC expects evidence before you write off rent on the accruals basis. A debt is generally bad when there’s little realistic prospect of recovery.
- The tenant has left with no forwarding address and can’t be traced
- Reasonable recovery action has failed or isn’t economic to pursue
- The tenant is insolvent or bankrupt
- Not just: the rent is a few weeks or months late
Keep records of your recovery efforts. If the debt is later recovered, remember to add it back as income in that period.
Unpaid rent under Making Tax Digital
From April 2026, over-£50,000 landlords report quarterly under MTD. Your basis determines what each update shows: on the cash basis, an empty rent line simply means no income that quarter; on the accruals basis, you record the rent due and any bad-debt adjustment.
Most landlords newly in MTD will be on the cash basis, which keeps arrears out of the figures automatically. If you’re unsure which basis you’re on, check before your first update — see cash basis records.
Never pay tax on rent you didn’t receive
LandlordTaxAi tracks rent received versus rent due, applies your accounting basis correctly and flags bad-debt adjustments — so arrears never inflate your tax bill.
See how it worksA worked example
A tenant owes James £3,000 in arrears, then absconds untraceably. James compares the two bases for 2026/27.
| Cash basis: rent recorded as income | £0 (never received) — no tax |
| Accruals basis: rent due recorded | £3,000 taxable when earned |
| Accruals basis: bad-debt relief once irrecoverable | −£3,000 |
| Net taxable either way | £0 |
Both bases land at no tax on the lost rent — but the cash basis gets there automatically, while the accruals basis needs an active bad-debt claim with evidence.
Frequently asked questions
Do I pay tax on rent a tenant never paid?
On the cash basis (default under £150,000 gross rent), no — you’re only taxed on rent received. On the accruals basis, rent due is taxed but you can claim bad-debt relief once it’s irrecoverable.
What is bad-debt relief?
A deduction on the accruals basis for rent you’re owed but genuinely won’t recover. It cancels the tax on income you never actually received.
When can I write off unpaid rent?
Only when it’s genuinely irrecoverable — the tenant has absconded, is insolvent, or recovery has realistically failed. Late rent alone isn’t enough.
Which basis am I on?
Most individual landlords under £150,000 gross rent are on the cash basis by default, unless they’ve chosen accruals. Above £150,000, accruals is required.
What if the tenant later pays?
On the accruals basis, if you claimed bad-debt relief and the rent is later recovered, you bring it back in as income in that period.
How does this work under MTD?
Your basis decides what each quarterly update shows. Cash-basis landlords simply report no income for unpaid rent; accruals-basis landlords record rent due and any bad-debt adjustment.
Written and reviewed by the LandlordTaxAi Editorial Team. Our guides are reviewed against current HMRC guidance and updated when the rules change. Operated by LandlordTaxAi, United Kingdom. Follow us on LinkedIn.
Last reviewed: 24 June 2026 · Researched against primary UK sources for the 2026/27 tax year: https://www.gov.uk/guidance/income-tax-when-you-rent-out-a-property-working-out-your-rental-income; https://www.litrg.org.uk/savings-property/property-income/working-out-property-income. This article is informational only and does not constitute tax advice. Check the latest details on GOV.UK or with a qualified accountant.