Most landlords who run into trouble are not unprofitable on paper. They are caught out by timing: a void lands the same month as a boiler failure, or the tax bill arrives looking far larger than the cash actually sitting in the account. Both problems are budgeting problems, and both are now sharpened by Section 24 and the arrival of Making Tax Digital. This guide shows how to build the reserves that absorb voids and repairs, how to model the real Section 24 cash flow squeeze with a worked example, how to split repairs from improvements so you claim correctly, and how to get MTD-ready before the deadline reaches you.
Why void periods and repairs decide your cash flow
A void is the gap between tenancies when the property earns nothing but still costs money. The mortgage, buildings insurance and any ground rent or service charge keep running, and you also pick up the bills a tenant would normally cover: council tax (no longer covered by a single person's discount or exemption unless the property qualifies) and utility standing charges. A void can last a few days or several months depending on the local market, the property type, and whether you are re-letting after a straightforward move-out or after possession proceedings.
Repairs are the other certainty. Even a well-kept property eventually needs a new boiler, a roof patch, a rewire or work to deal with damp. The danger is not the cost itself but its timing, because a major repair rarely gives notice and often coincides with the worst possible month. Operating costs (everything except the mortgage) commonly run at roughly a third to a half of gross rent once you fold in management, compliance and a fair maintenance allowance. If your numbers are tighter than that, you are running on a thin margin where a single void or repair tips the property into a loss for the month.
How to budget for void periods
Treat voids as a scheduled cost, not a surprise. Three steps turn them from a shock into a line in the forecast.
Estimate your realistic void length
Look at your own letting history first. If the property re-lets within two to four weeks, one month of running costs is usually enough cover. A slower local market, a larger or more specialist property, or a tenancy that ends in dispute can stretch that to several months. Then convert it to an annual figure using a vacancy rate of roughly 5 to 10 percent. On £12,000 of annual rent that is around £600 to £1,200 of income you should expect to lose and plan for, every year, before anything goes wrong.
Cost out a single void month
Add up every fixed cost the property carries with no tenant in it: mortgage, buildings insurance, council tax, utility standing charges, any service charge or ground rent, and management retainer. That monthly total, multiplied by your realistic void length, is the void figure your reserve has to cover. Remember the service charge point in particular, because if a charge was not built into the rent you cannot suddenly pass it to a tenant, and it comes straight out of your income.
Build a void fund (and pool it across a portfolio)
Hold one to three months of full running costs per property in a dedicated void fund. One property letting in a strong area can sit at the lower end; an HMO, a flat with high service charges, or anything in a slow market should sit at the higher end. If you own several properties, run one pooled reserve rather than separate pots, so a long void on one is absorbed by rent from the rest. Reducing voids in the first place is the cheapest win available: market four to six weeks before a tenancy ends, price to the live market, keep the property visibly maintained, and look after good tenants so they renew. Our guides on tracking profitability per property and portfolio accounting show how to see which properties carry the most void risk.
How to budget for repairs and maintenance
The reserve principle is the same as for voids: fund it steadily so the money is there when the boiler is not.
Set a maintenance reserve
A workable starting figure is 1 to 2 percent of the property's value a year, or roughly 10 to 15 percent of monthly rent, paid into a maintenance reserve. On a £200,000 property that is £2,000 to £4,000 a year. Older stock, HMOs and flats with communal liabilities belong at the top of that range. Alongside the routine reserve, run a separate sinking fund for big, predictable capital items (a re-roof, a rewire, a full bathroom or kitchen replacement) so a five-figure job does not blow up a year's cash flow in a single month.
Use planned voids for works (and budget for the unplanned)
An empty property is the right time for works that disturb a tenant, so a planned void can do double duty. But voids also surface hidden problems, especially where an outgoing tenant left damage, so keep some headroom in the void budget for repairs you only discover once the property is empty. Knowing which of those costs are deductible now and which are capital is what separates a tidy tax position from an HMRC enquiry, which is the next section.
Repairs versus improvements: the deduction that trips landlords up
This is the single most common error in landlord accounts. A repair restores the property to its former state and is a revenue cost you deduct against rental profit in the year you pay it. An improvement makes the property materially better than before and is capital expenditure, which is not a revenue deduction and usually only reduces Capital Gains Tax on a future sale as enhancement expenditure. Like-for-like replacement using modern equivalent materials is still a repair; you do not lose the deduction simply because today's boiler or window is better than the 1990s original it replaces. Replacing part of an asset is normally a repair, while replacing the entirety of a separate asset can be capital.
| Type of work | Repair (revenue, deductible now) | Improvement (capital, reduces CGT later) |
|---|---|---|
| Boiler | Replace a broken boiler with a modern equivalent | First-time installation of central heating |
| Windows | Replace rotten single-glazed units with standard double glazing | Adding bay windows or extra windows that did not exist |
| Kitchen | Replace a worn kitchen with a similar standard unit | Upgrade to a materially higher-spec, larger kitchen |
| Structure | Repair a leaking roof or patch damaged brickwork | Build an extension or convert a loft |
| Decoration | Repainting and making good between tenancies | Re-fitting the layout to a higher standard |
The cash flow consequence is real: a deductible repair gives you tax relief in the same year and helps the current bill, while a capital improvement ties up cash now and only pays back, partially, on sale. For the detail and the borderline cases, see what repairs landlords can deduct and the full list of allowable landlord tax deductions.
Section 24 and the cash flow squeeze
Section 24 is fully in force and it is the reason so many landlords feel poorer than their profit suggests. If you hold property personally, you no longer deduct mortgage interest from rental profit. Instead you receive a basic-rate tax reducer set at 20 percent of your finance costs. The mechanical effect is that your taxable profit is calculated as if the interest were not there, then a flat 20 percent credit is knocked off the bill. For a basic-rate taxpayer the maths roughly nets out. For a higher or additional-rate taxpayer it does not, because the profit is taxed at 40 or 45 percent while the relief stays pegged at 20 percent.
A worked Section 24 example
Take a single higher-rate landlord with one geared property, ignoring the personal allowance and other income for clarity:
| Line | Amount |
|---|---|
| Annual rent | £30,000 |
| Allowable running costs (insurance, management, maintenance, void allowance) | £4,000 |
| Mortgage interest | £12,000 |
| Taxable profit (rent minus running costs, interest NOT deducted) | £26,000 |
| Tax at 40 percent on £26,000 | £10,400 |
| Less Section 24 reducer (20 percent of £12,000 interest) | (£2,400) |
| Final tax bill | £8,000 |
| Real cash profit (rent minus costs minus interest) | £14,000 |
The property generated £14,000 of actual cash, yet the tax bill is £8,000 of that, over half. Under the pre-Section 24 rules the higher-rate tax would have been roughly £5,600 (40 percent of a £14,000 profit after deducting interest), so Section 24 has added around £2,400 to the bill on these figures. Scale that across a geared portfolio and a paper profit can leave very little real cash once the lender and HMRC have been paid, which is exactly why your forecast must model tax separately rather than assuming profit equals cash. For the step-by-step mechanics see how to calculate the Section 24 tax credit and the larger £50k worked example.
What changes in 2027
From 6 April 2027, property income is taxed at its own separate rates of 22, 42 and 47 percent (enacted in Finance Act 2026), which apply in England, Wales and Northern Ireland; only Scotland is carved out of this change for 2027/28. The Section 24 reducer rises in step to 22 percent, so it continues to track the basic property rate and no new basic-rate gap opens up against it. Higher-rate landlords still feel the same structural squeeze, because the reducer remains capped at the basic property rate while profit is taxed at the higher rates. We cover the detail in the 2027 property tax rates and Section 24 guide.
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Building a cash flow forecast that survives contact with reality
A forecast that only shows accounting profit will mislead you, because Section 24 drives a wedge between profit and cash. Build it to show cash after tax.
- List income: rent, plus any recoverable charges you actually collect.
- List fixed costs: mortgage, insurance, ground rent and service charge, management retainer.
- List variable costs: repairs, a maintenance reserve contribution, a void allowance, compliance certificates (Gas Safety, EICR, EPC), legal and re-letting fees.
- Add a contingency line of 5 to 10 percent of total costs.
- Model the tax separately under Section 24, then subtract it, so the bottom line is cash after tax rather than profit.
- Project month by month for at least 12 months, ideally 24 to 36, so you see the months where a renewal, an insurance premium and the January tax payment collide.
Yield and return belong in the same forecast. Gross yield (rent divided by value) is only a sorting tool; net yield (after running costs) and post-tax cash are what tell you whether a property is genuinely earning its keep, and ROI measures profit against the cash you actually invested. A geared property can show a modest yield but a strong ROI, or a tempting gross yield that net of Section 24 barely breaks even. Our guide to rental yield versus ROI works through the difference.
Getting MTD-ready before the deadline reaches you
Making Tax Digital for Income Tax is live and phased by qualifying income, which is your combined gross self-employment and property income before expenses. The mandate applies from 6 April 2026 for income over £50,000, from 6 April 2027 for income over £30,000, and from 6 April 2028 for income over £20,000. In scope, you keep digital records and file quarterly updates through compatible software, then a final declaration after the tax year ends.
The trap is the word gross. A landlord with £52,000 of rent and £40,000 of costs has only £12,000 of profit but is still in scope from April 2026, because the test is on the £52,000, not the £12,000. There are genuine exemptions (below threshold, or HMRC digital exclusion on grounds such as age, disability, location or religious belief), but for most people exemption is not automatic. The practical upside is that good digital record keeping is exactly the discipline that makes the void, repair and Section 24 budgeting in this guide work, because the numbers are already captured month by month. See the MTD for landlords deadline guide for who is in scope and when.
Cash flow mistakes that catch landlords out
- Treating taxable profit as if it were cash, and being short when the January tax bill lands.
- Underestimating void length, then having no reserve when a re-let drags on.
- Misclassifying an improvement as a repair (or missing a repair that was genuinely deductible).
- Forgetting compliance is a recurring cost: Gas Safety, EICR and EPC obligations all carry dates and bills.
- Mixing personal and rental money, so the real numbers are impossible to see and MTD is harder to meet.
- Leaning on credit cards for emergencies instead of a funded reserve.
When to bring in a specialist
Cash flow, Section 24 and the repair-versus-improvement line are where a specialist property accountant earns their place: modelling true post-tax cash across a portfolio, getting the deductions right, and testing whether incorporation actually helps your specific position rather than assuming it does. If you are weighing that question, incorporating without triggering Capital Gains Tax sets out where incorporation relief can apply and where the Stamp Duty and ongoing costs land. To understand the wider role, see what a property accountant does.