HMRC have launched a consultation 'Simplified cash basis for unincorporated property businesses', part of the Making Tax Digital package of consultations.

  • A significant portion of individuals who submit tax returns operate unincorporated property businesses, two thirds of which own only one property. 
  • The sector therefore appears to be a prime target for simplification ahead of the move to more frequent reporting.

The consultation proposes the introduction of an optional cash basis for unincorporated property businesses:

  • This would be broadly similar to the existing cash basis for trading income, with some differences (see below).
  • It would be available to individuals and partnerships of individuals, but not partnerships with corporate members, LLPs or trusts.
  • It would not change the underlying principles of what expenditure can be deducted, just the timing of deductions.
  • On moving to the cash basis transitional adjustments would be required which would broadly mirror those under the cash basis for traders.

Some key differences from the cash basis for traders are proposed:

  • There would be no threshold for eligibility: the business just has to be carried on by an individual or partnership of individuals.
  • Interest expense: instead of the £500 annual limit interest will have to be tied to property assets used in the business (subject to the existing restriction on mortgage interest relief for residential properties)
  • Furnished Holiday Lettings (FHLs) will continue to be able to claim for both initial and replacement assets.
  • Properties not qualifying as FHLs will only be entitled to a deduction for replacement assets (replacement furniture relief).

The consultation will run until 7 November 2016.  This will be followed by draft legislation in autumn 2016 for inclusion in Finance Bill 2017.

Consultation questions

Question 1  Do you feel there should be a relevant maximum limit imposed for eligibility for the cash basis for unincorporated property businesses? If so, what should this limit be and why?

Question 2 Do you feel there is any reason why the cash basis should not be optional for all eligible unincorporated property businesses?

Question 3 Would you want to opt in for each of their property businesses separately (for example, UK property business and overseas property business) or would they prefer to choose whether to opt in for all their property business income or none of it?

Question 4 Does the above advice give you enough information to decide whether or not to use the cash basis with/without (please indicate) professional advice? If not, what else would you need to know about the new rules?

Question 5 Does a regime that allows for individuals letting jointly, not in partnership, to separately opt to report using the cash basis present particular difficulties or issues?

Question 6 Should eligibility for the trading cash basis affect eligibility for the cash basis for unincorporated property businesses? If so, do you have any suggestions on what this interdependence should be?

Question 7 Would only recognising deposits that landlords are entitled to keep at the end of a tenancy create unnecessary complexity?

Question 8 Do you feel there is anything which has not been considered which could make the cash basis as simple as possible for landlords?

Question 9 Are you aware of any risks that the cash basis for unincorporated property business could present which could lead to the avoidance or reduction of liability to income tax? If so, please provide details.

Question 10 Do you have any comments, not already provided, on any aspect of the proposal?

Question 11 If the government introduces a simpler tax system for unincorporated property businesses, please provide details of how this will affect your business. This should include details of both the expected one-off and ongoing benefits and costs of:

a) Familiarisation with the new basis and updating your software or systems.

b) Not having to keep accruals accounts and prepare calculations in accordance with UK GAAP.

Question 12 Please tell us if you think there are any other benefits or costs not covered in the summary of impacts.

How to respond

Written responses should be submitted by 7 November 2016 via email to: This email address is being protected from spambots. You need JavaScript enabled to view it.


Our subscriber guides Property profits and losses: Adviser guide gives details of the existing taxation of property businesses.

Our guide Accounting: Simpler Income tax (cash basis) / fixed expenses gives details of the existing cash basis for traders.

For our summaries of the other Making Tax Digital documents see: Making Tax Digital: index

Consultation document: Simplified cash basis for unincorporated property businesses